|
| | | | | | | | |
| | | For the Three Months Ended |
| | | September 29, 2017 | | September 30, 2016 |
| In thousands | | | | |
| Foreign currency translation: | | | | |
| Beginning balance | | $ | (18,522 | ) | | $ | (22,590 | ) |
| Net gain/(loss) on foreign currency translation | | 7,731 |
| | 1,050 |
|
| Reclassification to net income | | — |
| | — |
|
| Other comprehensive income/(loss), net of tax | | 7,731 |
| | 1,050 |
|
| Ending balance | | $ | (10,791 | ) | | $ | (21,540 | ) |
| | | | | |
Pension and other post-retirement benefits(1): | | | | |
| Beginning balance | | $ | (117,080 | ) | | $ | (113,445 | ) |
| Reclassifications to net income: | | | | |
| Amortization of net loss, net of tax expense of $1,309 and $1,213, respectively | | 2,220 |
| | 2,005 |
|
| Other comprehensive income/(loss), net of tax | | 2,220 |
| | 2,005 |
|
| Ending balance | | $ | (114,860 | ) | | $ | (111,440 | ) |
| | | | | |
Derivative instruments(2): | | | | |
| Beginning balance | | $ | 142 |
| | $ | (770 | ) |
| Net loss on derivative instruments, net of tax (benefit) expense of ($4) and $118, respectively | | (6 | ) | | 195 |
|
| Reclassification to net income, net of tax (benefit) expense of ($39) and $87, respectively | | (64 | ) | | 143 |
|
| Other comprehensive income/(loss), net of tax | | (70 | ) | | 338 |
|
| Ending balance | | $ | 72 |
| | $ | (432 | ) |
| | | | | |
| Total accumulated other comprehensive income (loss) | | $ | (125,579 | ) | | $ | (133,412 | ) |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended September 29, 201730, 2022 and September 30, 2016October 1, 2021
(Unaudited)
15.18. SHAREHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (CONTINUED)
| | | | | | | | | | | | | | |
| | For the Nine Months Ended |
| | | September 30,
2022 | | October 1,
2021 |
| In thousands | | | | |
| Foreign currency translation and other: | | | | |
| Beginning balance | | $ | 8,772 | | | $ | (717) | |
| Net loss on foreign currency translation | | (25,354) | | | (9,945) | |
Reclassification to net income(1) | | — | | | 22,835 | |
| Other comprehensive (loss) income, net of tax | | (25,354) | | | 12,890 | |
| Ending balance | | $ | (16,582) | | | $ | 12,173 | |
| | | | |
Pension and other post-retirement benefits(2): | | | | |
| Beginning balance | | $ | (120,157) | | | $ | (130,104) | |
| Amortization of net loss, net of tax expense of $756 and $773, respectively | | 2,483 | | | 2,609 | |
| Other comprehensive income, net of tax | | 2,483 | | | 2,609 | |
| Ending balance | | $ | (117,674) | | | $ | (127,495) | |
| | | | |
| Total accumulated other comprehensive loss | | $ | (134,256) | | | $ | (115,322) | |
(1) The foreign currency translation reclassified to net income relates to the sale of the Company's UK Composites business. This balance was included in the loss accrual recorded in impairment on assets held for sale on the Company's Consolidated Statement of Operations in the year ended December 31, 2020. (See Note 3, Disposals, for additional information.) |
| | | | | | | | |
| | | For the Nine Months Ended |
| | | September 29, 2017 | | September 30, 2016 |
| In thousands | | | | |
| Foreign currency translation: | | | | |
| Beginning balance | | $ | (34,896 | ) | | $ | (22,625 | ) |
| Net gain/(loss) on foreign currency translation | | 24,105 |
| | 1,085 |
|
| Reclassification to net income | | — |
| | — |
|
| Other comprehensive income/(loss), net of tax | | 24,105 |
| | 1,085 |
|
| Ending balance | | $ | (10,791 | ) | | $ | (21,540 | ) |
| | | | | |
Pension and other post-retirement benefits(1): | | | | |
| Beginning balance | | $ | (121,448 | ) | | $ | (117,455 | ) |
| Reclassifications to net income: | |
|
| |
|
| Amortization of net loss, net of tax expense of $3,979 and $3,641, respectively | | 6,588 |
| | 6,015 |
|
| Other comprehensive income/(loss), net of tax | | 6,588 |
| | 6,015 |
|
| Ending balance | | $ | (114,860 | ) | | $ | (111,440 | ) |
| | | | | |
Derivative instruments(2): | | | | |
| Beginning balance | | $ | (49 | ) | | $ | (58 | ) |
| Net loss on derivative instruments, net of tax expense of $74 and $512, respectively | | 124 |
| | (845 | ) |
| Reclassification to net income, net of tax (benefit) expense of ($2) and $285, respectively | | (3 | ) | | 471 |
|
| Other comprehensive income/(loss), net of tax | | 121 |
| | (374 | ) |
| Ending balance | | $ | 72 |
| | $ | (432 | ) |
| | | | | |
| Total accumulated other comprehensive income (loss) | | $ | (125,579 | ) | | $ | (133,412 | ) |
(1)(2)These accumulated other comprehensive income components are included in the computation of net periodic pension cost.
(See Note 10, 14, Pension Plans for additional information.)
(2)See Note 6, Derivative Financial Instruments, for additional information regarding our derivative instruments.
16.19. INCOME TAXES
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | | | | | | | |
| Effective Income Tax Rate | | 17.0 | % | | 23.3 | % | | 18.6 | % | | 22.7 | % |
|
| | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | | | | | | | |
| Effective Income Tax Rate | | 36.2 | % | | 35.9 | % | | 36.9 | % | | 34.8 | % |
The effective income tax rate represents the combined federal, state and foreign tax effects attributable to pretax earnings for the period. The increasedecrease in the effective tax rate for the three-month and nine-month fiscal periods ended September 29, 2017,30, 2022 as compared to the statutory rate of 35%, wascorresponding rates in the prior year were primarily due to a projected foreign lossdriven by state tax benefits and lower net earnings in the current periods for which no tax benefit has been provided. The effective tax rate forperiod. In addition, the three-month fiscalprior period ended September 30, 2016 exceeds the statutory rate of 35%, primarily dueincluded a charge to certain discrete items, most notably unfavorable differences between foreign provisions for taxes and actual foreign returns filed.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the three-month and nine-month fiscal periods ended September 29, 2017 and September 30, 2016
(Unaudited)
16. INCOME TAXES (CONTINUED)
Arecord a valuation allowance foron deferred tax assets including those associated with net operating loss carryforwards, is recognized when it is more likely than not that some or allfor one of the benefit from the deferred tax asset will not be realized. To assess that likelihood, the Company uses estimatesCompany's foreign subsidiaries and judgment regarding future taxable income, and considers the tax consequences in the jurisdiction where such taxable income is generated,a separate charge to determine whether a valuation allowance is required. Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies, as well as the current and forecasted business economics.record provision to return benefits.
The Company has assessed both positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize operating loss carryforwards associated with certain foreign operations that will permit the Company to use $3.1 million of deferred tax assets associated with these foreign operations as of September 29, 2017. Through the end of the third quarter of 2017, the Company believes it is more likely than not that only $1.2 million of these deferred tax assets will be realized and, as such, has recorded a valuation allowance of $1.9 million. Going forward, management will continue to assess the available positive and negative evidence to determine whether it is likely sufficient future taxable income will be generated to permit the use of these deferred tax assets. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income are reduced or increased, or if additional weight is given to subjective evidence such as future expected growth because objective negative evidence in the form of cumulative losses is no longer present.
17.20. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance date of these financial statements. No material subsequent events were identified that require disclosure.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. It presents, in narrative and tabular form, information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our future results, and is designed to enable the readers of this report to obtain an understanding of our businesses, strategies, current trends and future prospects. It should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 20162021 ("20162021 Form 10-K") and the condensed consolidated financial statementsCondensed Consolidated Financial Statements included in Item 1 of this Form 10-Q.
OVERVIEW OF BUSINESS
Kaman Corporation (the "Company"("the Company") is comprised of twoconducts business through three business segments:
•The DistributionEngineered Products segment is a leading power transmission, automationserves the aerospace and fluid powerdefense, industrial distributor with operations throughout the United States. The segment provides electro-mechanical products, bearings, power transmission, motion control and electrical and fluid power components to a broad spectrum of industrialmedical markets serving both maintenance, repair and overhaul ("MRO") and original equipment manufacturer ("OEM") customers.
The Aerospace segment produces and marketsproviding sophisticated, proprietary aircraft bearings and components; super precision, miniature ball bearings; proprietary spring energized seals, springs and contacts; and wheels, brakes and related hydraulic components for helicopters and fixed-wing and UAV aircraft.
•The Precision Products segment serves the aerospace and defense markets providing precision safe and arming solutions for missile and bomb systems for the U.S. and allied militaries; subcontract helicopter work; restoration, modification and support of our SH-2G Super Seasprite maritime helicopters; manufacture and support of our heavy lift K-MAX® manned helicopter, the TITAN UAV aerial system and the KARGO UAV unmanned aerial system, a purpose built autonomous medium lift logistics vehicle.
•The Structures segment serves the aerospace and defense and medical end markets providing sophisticated complex metallic and composite aerostructures for commercial, military and general aviation fixed and rotary wing aircraft;aircraft, and medical imaging solutions.
Executive Summary
In September 2022, we completed our acquisition of Aircraft Wheel and Brake, the largest acquisition in our history. Despite the addition of acquisition sales, supply chain and program challenges constrained our financial results in the third quarter. Consolidated net sales decreased by 4.4% to $172.0 million compared to the prior year period, primarily due to an $11.9 million reduction in sales on our safe and arming solutionsarm devices. This reduction was partially offset by higher sales in our commercial, business and general aviation products, as demand continues to recover for missilethese products. Gross margin as a percentage of sales decreased in the quarter to 32.5% compared to 35.1% in the prior year period, due to program challenges, such as cost growth on certain legacy fuzing programs and bomb systemsa decline in profitability on our K-MAX® program, as well as the $0.8 million inventory step-up associated with the purchase accounting for the U.S.Aircraft Wheel and allied militaries. The segment also marketsBrake acquisition. Selling, general and administrative expenses ("S,G&A") increased by 24.6% primarily due to $10.6 million in higher corporate development activities, mostly associated with the designacquisition of Aircraft Wheel and supplyBrake. Operating income in the period decreased as a result of aftermarket partsthe drivers discussed above and due to businesses performing MROan increase in aerospace markets; performs helicopter subcontract work; restores, modifiesresearch and supports our SH-2G Super Seasprite maritime helicopters; manufacturesdevelopment costs on the KARGO UAV unmanned aerial system, partially offset by lower restructuring and supports our K-MAX® mannedseverance costs.
Other financial highlights
•Net earnings were $0.6 million and unmanned medium-to-heavy lift helicopters; and provides engineering design, analysis and certification services.
Financial performance
Net sales decreased 1.4% and 3.1%$8.7 million for the three-month and nine-month fiscal periods ended September 29, 2017, compared to30, 2022, respectively, $14.0 million and $25.8 million lower than the comparable fiscal periods in the prior year.year, respectively. These reductions were primarily driven by a decrease in operating income as discussed above and lower non-service pension and post-retirement benefit income, partially offset by lower income tax expense. The resulting GAAP diluted earnings per share was $0.02 and $0.31 in the three-month and nine-month fiscal periods ending September 30, 2022, respectively.
•Cash used in operating activities during the nine-month fiscal period ended September 30, 2022, was $33.7 million, compared to net cash provided of $14.1 million in the comparable period in 2021. This change was largely driven by the timing of collection of payments on the joint programmable fuze ("JPF") program, partially offset by the absence of approximately $25.1 million in nonrecurring payments to eligible participants of Bal Seal's employee retention plans implemented prior to our acquisition.
•Total unfulfilled performance obligations ("backlog") increased 9.3% to $765.9 million compared to total backlog at December 31, 2021, driven by new orders of our bearings products and seals, springs and contacts and the addition of
backlog associated with our Aircraft Wheel and Brake acquisition, partially offset by revenue recognized for the period.
Recent events
•In October 2022, we received a signed purchase agreement from North American Helicopter for a K-MAX® medium-to-heavy lift helicopter for delivery in the fourth quarter.
•In October 2022, Kaman Air Vehicles was selected to build a logistics unmanned aerial systems prototype for the United States Marine Corps. This funded prototype will be a military version of our KARGO UAV unmanned aerial system, with the build starting in 2023 in preparation a for a Field User Capability Assessment.
•In September 2022, we completed our acquisition of the Parker-Hannifin Corporation's Aircraft Wheel and Brake division.
•In August 2022, Kaman Precision Products announced an award from The Boeing Company for the Standoff Land Attack Missile Expanded Response (SLAM-ER) program. This award has a total value of approximately $38 million and secures deliveries in support of the SLAM-ER program through 2028.
•In July 2022, Carroll K. Lane was appointed segment lead of the Precision Products segment.
Impacts from Current Economy
We are currently operating in a period of global economic uncertainty, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Ukraine and Russia, the coronavirus ("COVID-19") pandemic and inflation and rising interest rates. U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions, including the military conflict in Ukraine and the resulting sanctions imposed on Russia. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in credit and capital markets, increases in commodity prices, supply chain interruptions, as well as the potential for increased risk of cyber disruptions. We are continuing to monitor the situation in Ukraine, including its global effects, and assessing its potential impact on our business, including the timing of our sales as certain customers purchase safety stock for their own supply chains. Although our business has not been materially impacted by the ongoing military conflict in Ukraine as of the date of this filing, we have begun to experience higher utility costs at our Germany operations in light of the European Union’s sanctions on Russia. It is impossible to predict the extent to which our operations, or those of our customers or suppliers, will be impacted, or the ways in which the conflict may impact our business, cash flows or results of operations.
We also continue to monitor the impact of COVID-19 on all aspects of our business and across the geographies in which we operate and serve customers, as well as the extent to which it has impacted and will continue to impact our customers, suppliers and other business partners. We are operating below pre-pandemic levels for certain commercial aerospace products. We are encouraged by the recoveries for these products and the strong order intake we saw in the first nine months of 2022; however, the developments related to COVID-19 variants make it difficult to predict the timing and magnitude of the recovery.
The U.S. economy is experiencing broad and rapid inflation and rising interest rates, as well as supply issues in material, services and labor due to economic policy, the pandemic and, more recently, the war in Ukraine. All of these forces have begun to impact our supply chain; we are seeing quality issues and defects, part shortages and increased lead times for certain parts. In addition to supply chain impacts, we will be impacted by higher interest expense given our outstanding borrowings under our revolving credit facility with a floating interest rate. These impacts are likely to persist through 2022 and beyond. We cannot predict the impact on the Company’s end markets or input costs nor the ability of the Company to recover cost increases through pricing.
RESULTS OF OPERATIONS
Refer to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the Quarterly Report on Form 10-Q for the period ended October 1, 2021 for a discussion of changes for the earliest periods presented.
Net earningsSales
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Net sales | | $ | 172,004 | | | $ | 179,836 | | | $ | 490,818 | | | $ | 533,846 | |
| $ change | | (7,832) | | | (34,123) | | | (43,028) | | | (65,325) | |
| % change | | (4.4) | % | | (15.9) | % | | (8.1) | % | | (10.9) | % |
| | | | | | | | |
| Acquisition sales | | 2,748 | | | — | | | 2,748 | | | — | |
| Sales of disposed businesses that did not qualify for discontinued operations | | 166 | | | 191 | | | 929 | | | 2,295 | |
| Organic sales | | $ | 169,090 | | | $ | 179,645 | | | $ | 487,141 | | | $ | 531,551 | |
| $ change | | (10,555) | | | | | (44,410) | | | |
| % change | | (5.9) | % | | | | (8.4) | % | | |
For the Three Months Ended
Net sales for the three-month fiscal period ended September 30, 2022 decreased 6.7%when compared to the corresponding period in 2021. The decrease in sales was attributable to $17.3 million in lower sales in our Precision Products segment, partially offset by an increase in sales at our Engineered Products segment, including the contribution of $2.7 million of sales from our Aircraft Wheel and 17.6%Brake acquisition, and our Structures segment. Foreign currency exchange rates relative to the U.S. dollar had an unfavorable impact of $4.4 million on net sales. See Segment Results of Operations and Financial Condition below for further discussion of segment net sales.
The table below summarizes the changes in organic net sales by product line for the three-month fiscal period ended September 30, 2022, compared to the corresponding period in 2021.
| | | | | | | | | | | | | | | | | | | | |
| Product Line | | Increase (Decrease) | | $ (in millions) | | % |
| Defense | | ↓ | | $(5.7) | | (13.2)% |
| Safe and Arm Devices | | ↓ | | $(11.9) | | (24.2)% |
| Commercial, Business and General Aviation | | ↑ | | $7.8 | | 17.6% |
| Medical | | ↑ | | $1.6 | | 7.5% |
| Industrial | | ↓ | | $(2.4) | | (11.7)% |
For the Nine Months Ended
Net sales for the nine-month fiscal period ended September 30, 2022 decreased when compared to the corresponding period in 2021, primarily due to an 8.4% decrease in organic sales and $1.4 million in lower sales attributable to businesses sold in the current and prior year periods, partially offset by the contribution of $2.7 million of sales from our Aircraft Wheel and Brake acquisition. The decrease in organic sales was attributable to $60.6 million in lower sales in our Precision Products segment and $9.2 million in lower organic sales at our Structures segment, partially offset by an increase in sales at our Engineered Products segment. Foreign currency exchange rates relative to the U.S. dollar had an unfavorable impact of $10.4 million on net sales. See Segment Results of Operations and Financial Condition below for further discussion of segment net sales.
The table below summarizes the changes in organic net sales by product line for the nine-month fiscal period ended September 30, 2022, compared to the corresponding period in 2021.
| | | | | | | | | | | | | | | | | | | | |
| Product Line | | Increase (Decrease) | | $ (in millions) | | % |
| Defense | | ↓ | | $(24.7) | | (19.7)% |
| Safe and Arm Devices | | ↓ | | $(52.6) | | (35.3)% |
| Commercial, Business and General Aviation | | ↑ | | $26.9 | | 20.3% |
| Medical | | ↑ | | $6.3 | | 9.7% |
| Industrial | | ↓ | | $(0.2) | | (0.4)% |
Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Gross profit | | $ | 55,825 | | | $ | 63,065 | | | $ | 158,519 | | | $ | 177,916 | |
| $ change | | (7,240) | | | (3,810) | | | (19,397) | | | (13,329) | |
| % change | | (11.5) | % | | (5.7) | % | | (10.9) | % | | (7.0) | % |
| % of net sales | | 32.5 | % | | 35.1 | % | | 32.3 | % | | 33.3 | % |
Gross profit decreased for the three-month and nine-month fiscal periods ended September 29, 2017,30, 2022, as compared to the comparable fiscalcorresponding periods in 2021. These decreases were primarily attributable to reductions in JPF sales, lower sales and associated gross profit on our defense bearings products, our K-MAX® program and the prior year.
Diluted earnings per share decreased to $0.58SH-2G program for the three-month fiscal period ended September 29, 2017, compared to $0.62 in the comparable fiscal period in the prior year. ForNew Zealand. These changes, totaling $11.1 million and $38.9 million, respectively, were partially offset by higher sales and associated gross profit on our commercial bearings. In the nine-month fiscal period ended September 29, 2017, diluted earnings per share decreased to $1.27, compared to $1.5630, 2022, these changes were also offset by higher gross profit on springs, seals and contacts used in the comparable fiscal period in the prior year.medical applications and on engine aftermarket parts.
Cash provided by operating activities during the nine-month fiscal period ended September 29, 2017, was $43.8 million, $26.2 million less than the comparable fiscal period in the prior year.
Recent events
On October 3, 2017, our Aerospace segment announced that it had signedGross profit as a contract with Columbia Basin Helicopters for the purchasepercentage of a K-MAX® helicopter to be delivered in 2018.
On October 1, 2017, Mr. Richard R. Barnhart became the President of Kaman Aerospace Group, succeeding Mr. Gregory L. Steiner, who is expected to retire as of January 2, 2018.
In September 2017, Rotex Helicopter accepted the third K-MAX® helicopter from the newly reopened commercial production line. This delivery followed Lectern Aviation of China's acceptance of the first two K-MAX® helicopters in July 2017.
On September 7, 2017, the Company announced a restructuring plan resulting from its ongoing effort to improve capacity utilization and operating efficiency to better position our Aerospace segment for increased profitability and growth. These actions are expected to result in approximately $8.0 million to $10.0 million in pre-tax restructuring charges, beginning in the third quarter of 2017 through the planned completion of restructuring activities in the fourth quarter of 2018. The Company anticipates these actions will result in total cost savings of approximately $4.0 million annually beginning in 2019.
On July 17, 2017, our Aerospace segment announced it had entered into a new multi-year contract with Sikorsky to manufacture H-60 cockpits under the Department of Defense MY IX H-60 procurement authorization. The term of the agreement will be for five years, beginning in 2018 and ending in 2022.
RESULTS OF OPERATIONS
Consolidated Results
Net Sales
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Net sales | | $ | 447,046 |
| | $ | 453,474 |
| | $ | 1,331,993 |
| | $ | 1,375,314 |
|
| $ change | | (6,428 | ) | | 19,732 |
| | (43,321 | ) | | 52,466 |
|
| % change | | (1.4 | )% | | 4.5 | % | | (3.1 | )% | | 4.0 | % |
Net sales decreased for the three-month and nine-month fiscal periods ended September 29, 2017,30, 2022, as compared to the corresponding periods in 2016, mainly due2021. These decreases were primarily attributable to the mix of JPF sales in the current year, cost growth on certain legacy fuzing programs and certain structures programs, a decreasedecline in net salesprofitability of our K-MAX® program and the $0.8 million inventory step-up recorded associated with the acquisition of Aircraft Wheel and Brake. These changes were partially offset by improved performance on our memory programs and certain composite programs and the addition of gross profit associated with programs at our Distribution segment. Net salesAircraft Wheel and Brake.
Selling, General & Administrative Expenses (S,G&A)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| S,G&A | | $ | 49,009 | | | $ | 39,335 | | | $ | 127,980 | | | $ | 116,182 | |
| $ change | | 9,674 | | | 2,571 | | | 11,798 | | | (12,306) | |
| % change | | 24.6 | % | | 7.0 | % | | 10.2 | % | | (9.6) | % |
| % of net sales | | 28.5 | % | | 21.9 | % | | 26.1 | % | | 21.8 | % |
S,G&A increased for the quarter remained relatively flat at our Aerospace segmentthree-month and nine-month fiscal periods ended September 30, 2022, when compared to the corresponding periodperiods in 2016. Foreign currency exchange rates relative2021. This was primarily attributable to $10.6 million and $12.7 million, respectively, in higher costs associated with corporate development activities mostly due to the U.S. dollar hadacquisition of Aircraft Wheel and Brake in the current period. Additionally, in the nine-month fiscal period ended September 30, 2022, we experienced higher travel expenses as
restrictions imposed to limit the spread of COVID-19 are lifting. These increases were partially offset by a favorable impactdecrease in compensation expense as we realize the benefits from our cost reduction efforts in the prior year.
Costs from Transition Service Agreement
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Costs from transition services agreement | | $ | — | | | $ | 24 | | | $ | — | | | $ | 1,728 | |
Upon closing the sale of $1.2our former Distribution business, the Company entered into a TSA with the buyer, pursuant to which the Company agreed to support the information technology ("IT"), human resources and benefits, tax and treasury functions of the Distribution business for six to twelve months. The buyer exercised an option to extend the support period for up to one additional year for certain services. During the third quarter of 2021, the TSA expired and all services were completed as of the end of the period. As such, there were no costs incurred associated with TSA and no income earned from the TSA in the three-month and nine-month fiscal periods ended September 30, 2022. Costs incurred and income earned associated with the TSA for the three-month fiscal period ended October 1, 2021 were not material. The Company incurred $1.7 million in costs associated with the TSA, which were partially offset by $0.9 million in income earned from the TSA in the nine-month fiscal period ended October 1, 2021. The income earned from the TSA was included below operating income in income from transition services agreement on the Company's Condensed Consolidated Statement of Operations.
Restructuring and Severance Costs
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Restructuring and severance costs | | $ | (243) | | | $ | 2,611 | | | $ | 2,853 | | | $ | 5,479 | |
The Company has identified workforce reductions and other reductions in certain general and administrative expenses which resulted in $1.9 million in restructuring and severance costs in the nine-month fiscal period ended September 30, 2022. In conjunction with the sale of the Company's Mexico operations in the third quarter of 2022, the Company reversed severance costs previously accrued, which were partially offset by costs incurred in the current period. This resulted in a net reduction to restructuring and severance costs of $0.2 million for the three-month fiscal period ended September 29, 2017. For30, 2022. In the three-month and nine-month fiscal period, thereperiods ended October 1, 2021, the Company incurred $0.4 million and $3.3 million in restructuring and severance costs associated with cost reduction efforts. These costs were lower net sales at our Aerospace segmentincluded in restructuring and an unfavorable impactseverance costs on the Company's Condensed Consolidated Statements of foreign currency exchange rates relativeOperations. Actions taken throughout 2021 and 2022 have started to the U.S. dollar of $2.7 million. (See segment discussion below for additional information.)
Gross Profit
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Gross profit | | $ | 138,935 |
| | $ | 135,490 |
| | $ | 398,714 |
| | $ | 413,686 |
|
| $ change | | 3,445 |
| | 5,564 |
| | (14,972 | ) | | 23,897 |
|
| % change | | 2.5 | % | | 4.3 | % | | (3.6 | )% | | 6.1 | % |
| % of net sales | | 31.1 | % | | 29.9 | % | | 29.9 | % | | 30.1 | % |
Gross profit increased for the three-month fiscal period ended September 29, 2017, as compared to the corresponding period in 2016. This was a result of higher gross profit at our Aerospace segment, primarily related to our JPF program customer mix. For the three-month fiscal period ended September 29, 2017, JPF deliveries consisted of mostly higher margin direct commercial sales to foreign militaries compared to deliveries of mainly USG fuzesgenerate savings in the corresponding period in 2016. Additionally, there were higher sales and associated gross profit under our AH-1Z program. Partially offsetting these increases in gross profit was lower gross profit at our Distribution segment, primarily attributable to lower sales under our bearings and power transmission and automation, control and energy product lines.
Gross profit decreased forfirst half of 2022, with total annualized cost savings of approximately $12.0 million being realized by 2024. Through the nine-month fiscal period ended September 29, 2017, as compared30, 2022, we have realized approximately $6.4 million in savings related to these actions.
In addition to the corresponding periodrestructuring and severance costs discussed above, in 2016. This was a result of lower gross profit at both our Distribution and Aerospace segments. The decrease in gross profit at our Distribution segment was primarily attributable to lower sales under our bearings and power transmission and automation, control and energy product lines. The decrease in gross profit at our Aerospace segment was primarily associated with our JPF program customer mix. For the nine-month fiscal period ended September 29, 2017, there were lower direct commercial sales30, 2022, the Company incurred $1.0 million in other severance expense. In both the three-month and nine-month fiscal periods ended October 1, 2021, we incurred $2.2 million in costs associated with the separation of executive officers.
(Gain) Loss on Sale of Business
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| (Gain) loss on sale of business | | $ | (457) | | | $ | — | | | $ | (457) | | | $ | 234 | |
In the third quarter of 2022, we sold certain assets and liabilities of our Mexico operations. In the three-month and nine-month fiscal periods ended September 30, 2022, we recorded a gain of $0.5 million associated with the sale.
In 2020, we received approval from our Board of Directors to foreign militaries comparedsell our UK Composites business. In the fourth quarter of 2020, we accrued a loss of $36.3 million on the anticipated sale. In the first quarter of 2021, we closed on a transaction to sell the corresponding period in 2016. Additionally, JPF deliveriesUK Composites business. We recorded an additional loss of $0.2 million in the current nine-month period consisted mostlyfirst quarter of USG fuzes under Option 12, which were negotiated at a lower selling price than Option 11 sold in2021 when the corresponding period in 2016.sale was finalized.
Gross profit as a percentage of net sales increasedOperating Income
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Operating income | | $ | 446 | | | $ | 15,962 | | | $ | 5,783 | | | $ | 36,407 | |
| $ change | | (15,516) | | | 54,889 | | | (30,624) | | | 82,526 | |
| % change | | (97.2) | % | | 141.0 | % | | (84.1) | % | | 178.9 | % |
| % of net sales | | 0.3 | % | | 8.9 | % | | 1.2 | % | | 6.8 | % |
Operating income decreased for the three-month and nine-month fiscal periodperiods ended September 29, 2017,30, 2022, as compared to the corresponding periodperiods in 2016,2021. These decreases were primarily driven by lower operating income at the Precision Products segment and $10.6 million and $12.7 million, respectively, in higher costs associated with corporate development activities mostly due to the customer mix under our JPF program described above. Additionally, gross profit as a percentageacquisition of net sales increased duringAircraft Wheel and Brake, partially offset by the three-month fiscal period dueabsence of costs related to improvements in various metallic and composite structures programs. Gross profit as a percentage of net sales remained relatively flat forthe TSA. In the nine-month fiscal period ended September 29, 2017, as compared to the corresponding period in 2016.
Selling, General & Administrative Expenses (S,G&A)
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| S,G&A | | $ | 106,349 |
| | $ | 104,060 |
| | $ | 324,533 |
| | $ | 333,726 |
|
| $ change | | 2,289 |
| | 3,907 |
| | (9,193 | ) | | 26,914 |
|
| % change | | 2.2 | % | | 3.9 | % | | (2.8 | )% | | 8.8 | % |
| % of net sales | | 23.8 | % | | 22.9 | % | | 24.4 | % | | 24.3 | % |
The increase in S,G&A for the three-month fiscal period ended September 29, 2017, compared to the corresponding period in 2016, resulted from higher corporate expenses and an increase in expenses at our Aerospace segment. The increase in corporate expenses was primarily driven by $2.1 million in costs associated with the retirement of a senior executive and higher employee and employee-related costs, partially offset by lower consulting costs. The increase in expenses at our Aerospace segment primarily related to higher salary and wage expenses. The higher corporate expenses and increase in expenses at our Aerospace segment were partially offset by lower expenses at our Distribution segment, primarily related to lower expenses of $2.3 million associated with our productivity and efficiency initiatives.
The decrease in S,G&A for the nine-month fiscal period ended September 29, 2017, compared to the corresponding period in 2016, resulted from lower expenses at both our Distribution and Aerospace segments, partially offset by an increase in corporate expenses. The decrease in expenses at our Distribution segment primarily related to the absence of $6.5 million in costs associated with our 2016 productivity and efficiency initiatives and lower salary and benefit expenses. The decrease in expenses at our Aerospace segment was primarily attributable to lower costs associated with the sale of government contract program inventory (see segment discussion below for additional information), partially offset by higher salary and wage expenses. These30, 2022, these decreases were partially offset by an increase in corporate expenses. This was a result of higher employee and employee-related costs and $2.1 million in costs associated with the retirement of a senior executive, partially offset by lower consulting costs.
Restructuring Costs
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Restructuring costs | | $ | 2,500 |
| | $ | 344 |
| | $ | 2,500 |
| | $ | 691 |
|
During the third quarter of 2017, we recorded $2.5 million in costs for restructuring activities at our Aerospace segment to support the ongoing effort of improving capacity utilization and operating efficiency to better position the Company for increased profitability and growth. Such actions include workforce reductions and the consolidation of operations, which we expect to continue through the planned completion in the fourth quarter of 2018. Additionally, included in this expense is approximately $1.0 million of cost that primarily relates to the write-off of inventory for various small order programs that we will no longer continue to manufacture as a result of the consolidation of operations.
Operating Income
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Operating income | | $ | 30,298 |
| | $ | 31,062 |
| | $ | 71,898 |
| | $ | 79,259 |
|
| $ change | | (764 | ) | | 1,279 |
| | (7,361 | ) | | (3,285 | ) |
| % change | | (2.5 | )% | | 4.3 | % | | (9.3 | )% | | (4.0 | )% |
| % of net sales | | 6.8 | % | | 6.8 | % | | 5.4 | % | | 5.8 | % |
Operating income remained relatively flat for the three-month fiscal period ended September 29, 2017, versus the comparable period in 2016, primarily due to higher operating income at both our Aerospace and Distribution segments, offset by higher corporate expenses, as discussed above. The decrease in operating income for the nine-month fiscal period ended September 29, 2017, compared to the corresponding period in 2016, was attributable to lower operating income at our Aerospace segment and higher corporate expenses,also partially offset by higher operating income at our Distribution segment. (Seethe Engineered Products segment, discussiondespite the costs recorded associated with the purchase accounting for the Aircraft Wheel and Brake acquisition. See Segment Results of Operations and Financial Condition below for additional information.)further discussion of segment operating income.
Interest Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Interest expense, net | | $ | 3,614 | | | $ | 3,646 | | | $ | 8,088 | | | $ | 12,232 | |
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Interest expense, net | | $ | 5,264 |
| | $ | 4,165 |
| | $ | 15,546 |
| | $ | 11,960 |
|
Interest expense, net, generally consists of interest charged on our Credit Agreement, which includes a revolving credit facility, and a term loan facility, and our convertible notes and the amortization of debt issuance costs, offset by interest income. Interest expense, net for the three-month fiscal period ended September 30, 2022 remained relatively flat when compared to the corresponding period in 2021, primarily due to $0.7 million in lower interest on our convertible notes, which was a result of the adoption of Accounting Standard Update ("ASU") 2020-06 on January 1, 2022, mostly offset by interest expense on our revolving credit agreement as a result of higher borrowings. Refer to Note 2, Recent Accounting Standards, for further information on the adoption of ASU 2020-06.
The increasedecrease in interest expense, net for both periodsthe nine-month fiscal period ended September 29, 2017,30, 2022 compared to the corresponding periodsperiod in 2016,2021 was primarily attributable to higherlower interest expense underassociated with our deferred compensation plan and $2.2 million in lower interest on our convertible notes and a higher interest rate for outstanding amounts under the Credit Agreement. At September 29, 2017, the interest rate for outstanding amounts under the Credit Agreement was 2.56% compared to 2.13% at September 30, 2016. Additionally, for the nine-month fiscal period, the increase in interest expense was attributabledue to the write-offadoption of unamortized debt issuance costs and the unamortized debt discount associated with the redemption of our 2017 notes, for $0.3 million and $1.0 million, respectively. These increases were partially offset by lower average borrowings, as compared to the corresponding periods ended September 30, 2016. (See Liquidity and Capital Resources section below for information on our borrowings.)ASU 2020-06 discussed above.
Effective Income Tax Rate
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | | | | | |
| Effective income tax rate | | 17.0 | % | | 23.3 | % | | 18.6 | % | | 22.7 | % |
|
| | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | | | | | |
| Effective income tax rate | | 36.2 | % | | 35.9 | % | | 36.9 | % | | 34.8 | % |
The effective income tax rate represents the combined federal, state and foreign tax effects attributable to pretax earnings for the period. The increasedecrease in the effective tax rate for the three-month and nine-month fiscal periods ended September 29, 2017,30, 2022 as compared to the statutory rate of 35%, iscorresponding rates in the prior year were primarily due to a projected foreign lossdriven by state tax benefits and lower net earnings in the current periodsperiod. In addition, the prior period included a charge to record a valuation allowance on deferred tax assets for which no tax benefit has been provided. The effective rate forone of the three-month fiscal period ended September 30, 2016 exceeds the statutory rate of 35%, primarily dueCompany's foreign subsidiaries and a separate charge to certain discrete items, most notably unfavorable differences between foreign provisions for taxes and actual foreign returns filed.record provision to return benefits.
DistributionSEGMENT RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Engineered Products Segment
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Net sales | | $ | 92,052 | | | $ | 84,399 | | | $ | 263,269 | | | $ | 235,134 | |
| $ change | | 7,653 | | | 6,979 | | | 28,135 | | | — | |
| % change | | 9.1 | % | | 9.0 | % | | 12.0 | % | | — | % |
| | | | | | | | |
| Operating income | | $ | 14,156 | | | $ | 14,931 | | | $ | 40,665 | | | $ | 29,595 | |
| $ change | | (775) | | | 6,337 | | | 11,070 | | | 4,769 | |
| % change | | (5.2) | % | | 73.7 | % | | 37.4 | % | | 19.2 | % |
| % of net sales | | 15.4 | % | | 17.7 | % | | 15.4 | % | | 12.6 | % |
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Net sales | | $ | 267,641 |
| | $ | 274,388 |
| | $ | 817,965 |
| | $ | 849,104 |
|
| $ change | | (6,747 | ) | | (21,924 | ) | | (31,139 | ) | | (62,728 | ) |
| % change | | (2.5 | )% | | (7.4 | )% | | (3.7 | )% | | (6.9 | )% |
| | | | | | | | | |
| Operating income | | $ | 13,369 |
| | $ | 11,872 |
| | $ | 40,997 |
| | $ | 36,148 |
|
| $ change | | 1,497 |
| | (2,550 | ) | | 4,849 |
| | (6,641 | ) |
| % change | | 12.6 | % | | (17.7 | )% | | 13.4 | % | | (15.5 | )% |
| % of net sales | | 5.0 | % | | 4.3 | % | | 5.0 | % | | 4.3 | % |
Net salesSales
Net sales for the three-month and nine-month fiscal periods ended September 29, 2017 decreased when30, 2022 increased compared to the corresponding periodperiods in 2016, primarily due to decreases2021, driven by higher sales volume of our commercial bearings products, aftermarket parts and springs, seals and contacts used in medical implantables, as well as $2.7 million in revenue from our newly-acquired Aircraft Wheel and Brake division. Additionally, in the nine-month fiscal periods ended September 30, 2022, we had higher sales volume of $6.1seals, springs and $27.8contacts used in industrial applications. These increases, totaling $13.6 million and $37.2 million, respectively, associated withwere partially offset by lower sales volume of our defense and industrial bearings and power transmission and automation, control and energy product lines and less significant decreases in our fluid power product line. The decreases in sales in our product lines forproducts. For the three-month and nine-month fiscal periods ended September 29, 2017, were mostly attributable to lower sales volume to our MRO customers of $13.1 million and $34.9 million, respectively, partially offset by higher sales volume to our OEM customers.
Additionally, contributing to the decrease in sales for the three-month fiscal period when compared to the corresponding period in the prior year was one fewer sales day in the current quarter. Looking at the markets we serve, sales were lower in the paper manufacturing, nonmetallic mineral product manufacturing and chemical manufacturing markets. Partially offsetting these decreases, were higher sales in the machinery manufacturing and mining markets.
Further contributing to the decrease in sales for the nine-month fiscal period was two fewer sales days in the first nine months of 2017 when compared to the corresponding period in 2016. Looking at the markets we serve, sales were lower in the food manufacturing, paper manufacturing and merchant wholesalers durable goods markets. Partially offsetting these decreases, were higher sales in the fabricated metal product and mining markets.
"Organic Sales per Sales Day" is a metric management uses to evaluate performance trends at our Distribution segment and is calculated by taking Organic Sales divided by the number of Sales Days in the period. The following table illustrates the calculation of Organic Sales per Sales Day.
|
| | | | | | | | | | | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| September 29,
2017 |
| September 30,
2016 |
| September 29,
2017 |
| September 30,
2016 |
|
| (in thousands) |
| Current period |
|
|
|
|
|
|
|
|
|
| Net sales |
| $ | 267,641 |
|
| $ | 274,388 |
|
| $ | 817,965 |
|
| $ | 849,104 |
|
Acquisition sales (1) |
| — |
|
| 1,128 |
|
| — |
|
| 4,681 |
|
| Organic sales |
| 267,641 |
|
| 273,260 |
|
| 817,965 |
|
| 844,423 |
|
| Sales days |
| 62 |
|
| 63 |
|
| 190 |
|
| 192 |
|
| Organic Sales per Sales Day for the current period | a | $ | 4,317 |
|
| $ | 4,337 |
|
| $ | 4,305 |
|
| $ | 4,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prior period |
|
|
|
|
|
|
|
|
|
|
|
| Net sales from the prior year |
| $ | 274,388 |
|
| $ | 296,312 |
|
| $ | 849,104 |
|
| $ | 911,832 |
|
| Sales days from the prior year |
| 63 |
|
| 64 |
|
| 192 |
|
| 193 |
|
| Sales per sales day from the prior year | b | $ | 4,355 |
|
| $ | 4,630 |
|
| $ | 4,422 |
|
| $ | 4,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| % change | (a-b)÷b | (0.9 | )% |
| (6.3 | )% |
| (2.6 | )% |
| (6.9 | )% |
(1) Sales contributed by an acquisition are included in Organic Sales beginning with the thirteenth month following the date of acquisition. Prior period information is adjusted to reflect acquisition sales for that period as Organic Sales when calculating the change in Organic Sales per Sales Day for the current period.
Operating income
The increase in operating income for the three-month and nine-month fiscal periods ended September 29, 2017, when compared to the corresponding periods in the prior year, was primarily attributable to the benefits received from the productivity initiatives implemented in 2016 and lower expenses of $2.3 million and $6.5 million, respectively, for the cost incurred related to the implementation of these productivity and efficiency initiatives. The initiatives included operational process improvements and data analytics, primarily focused on expanding operating margins. Additionally, we experienced lower incentive compensation costs in both periods. For the nine-month fiscal period, we also experienced lower salary and benefit costs. These savings were partially offset by a decrease in sales and related gross profit.
Other Matters
Enterprise Resource Planning System
In July 2012, we announced a decision to invest in a new ERP business system for our Distribution segment with an estimated total cost of $45.0 million. Since our announcement in 2012, Distribution has acquired nine businesses. To date, we have implemented the new ERP system at four acquired entities, of which two were not included in the original project scope. Additionally, an upgraded version of the software was released during the early stages of our initial implementation plan and Distribution elected to install this major upgrade because of the increased functionality, enhanced features and new user interface it offered. Recently, our software vendor responsible for the ERP system notified us that another upgrade is available, which is designed to improve overall performance and further enhance the capabilities of the system. Management has assessed this upgrade against the current version of the ERP system and the requirements of the business. This upgrade is expected to leverage the existing work completed to date and we are currently working closely with the software vendor to revise the project plan and implementation timeline. As a result of the unplanned implementations at the acquired businesses and the software upgrades, our implementation timeline has been extended and the total project cost is currently estimated between $51.0 million and $54.0 million.
For the three-month fiscal periods ended September 29, 2017, and September 30, 2016, ERP system expenses incurred totaled $0.4 million and $0.3 million, respectively, and ERP system capital expenditures totaled $0.8 million and $1.0 million, respectively. For the nine-month fiscal periods ended September 29, 2017, and September 30, 2016, ERP system expenses incurred totaled $1.1 million and $0.8 million, respectively, and ERP system capital expenditures totaled $2.7 million and $2.9 million, respectively. Total to date ERP system capital expenditures as of September 29, 2017, were $37.2 million. Depreciation expense for the ERP system for the three-month fiscal periods ended September 29, 2017, and September 30, 2016, totaled $0.6 million and $0.7 million, respectively. Depreciation expense for the ERP system for the nine-month fiscal periods ended September 29, 2017, and September 30, 2016, totaled $1.9 million and $2.1 million, respectively.
Aerospace Segment
Results of Operations
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| Net sales | | $ | 179,405 |
| | $ | 179,086 |
| | $ | 514,028 |
| | $ | 526,210 |
|
| $ change | | 319 |
| | 41,656 |
| | (12,182 | ) | | 115,194 |
|
| % change | | 0.2 | % | | 30.3 | % | | (2.3 | )% | | 28.0 | % |
| | | | | | | | | |
| Operating income | | $ | 31,877 |
| | $ | 29,616 |
| | $ | 74,736 |
| | $ | 81,374 |
|
| $ change | | 2,261 |
| | 1,815 |
| | (6,638 | ) | | 2,599 |
|
| % change | | 7.6 | % | | 6.5 | % | | (8.2 | )% | | 3.3 | % |
| % of net sales | | 17.8 | % | | 16.5 | % | | 14.5 | % | | 15.5 | % |
Net sales
Sales remained relatively flat for the three-month fiscal period ended September 29, 2017, as compared to the corresponding period in 2016. This was a result of an increase in sales of $8.5 million generated by our commercial product programs, mostly offset by a decrease in sales generated by our military product programs of $8.2 million. The increase in sales under our commercial product programs was primarily attributable to higher sales on our K-MAX® program and higher sales volume under our commercial bearings products. The decrease in military sales for the three-month fiscal period ended September 29, 2017, was primarily attributable to lower sales under our JPF program with the USG, lower sales on the Boeing A-10 program and a decrease in sales on our Sikorsky BLACK HAWK helicopter program. These decreases, totaling $37.8 million, were partially offset by higher direct sales of our JPF to2022, foreign militaries.
Foreign currency exchange rates relative to the U.S. dollar had a favorable impact of $1.2 million on net sales for the three-month fiscal period ended September 29, 2017.
Sales decreased for the nine-month fiscal period ended September 29, 2017, as compared to the corresponding period in 2016, primarily due to a decrease in sales generated by our military product programs of $27.5 million. The decrease was primarily attributable to lower direct sales of our JPF to foreign militaries, lower sales volume for our fabricated products from foreign operations, a decrease in sales under certain composite structures programs and lower sales under our Boeing A-10 program and SH-2G(I) contract with New Zealand. These decreases, totaling $37.4 million, were partially offset by higher sales under our SH-2G program with Peru and the AH-1Z program.
Partially offsetting the decrease in military sales for the nine-month fiscal period ended September 29, 2017, was a $15.3 million increase in sales generated by our commercial product programs. The increase was primarily attributable to higher sales under the K-MAX® program, higher sales volume under our commercial bearings products and an increase in sales under our composite structure products from foreign operations. These increases, totaling $22.7 million, were partially offset by lower sales under our Bell Helicopter composite blade program and the Boeing 767/777 program.
Foreign currency exchange rates relative to the U.S. dollar had an unfavorable impact of $2.7$4.4 million and $10.4 million, respectively, on net sales.
Operating Income
Operating income for the three-month fiscal period ended September 30, 2022 decreased when compared to the corresponding period in 2021, primarily due to lower sales volume and associated gross profit on our defense and industrial bearings products, higher research and development costs and the $0.8 million inventory-step up recorded associated with the acquisition of Aircraft Wheel and Brake. These decreases in gross profit, totaling $5.3 million, were partially offset by higher sales and associated gross profit on our seals, springs and contacts used in industrial applications and commercial bearings products, which was partially muted by supply chain challenges.
Operating income for the nine-month fiscal period ended September 29, 2017.
Operating income
Operating income30, 2022 increased for the three-month fiscal period ended September 29, 2017,when compared to the corresponding period in 2016. The increase was2021, primarily attributabledue to higher sales and associated gross profit underon our JPF program with foreign militariesseals, springs and our AH-1Z program.contacts used in medical implantables and industrial applications, aftermarket parts and commercial bearings products. These increases totaling $15.6in gross profit of $20.0 million were partially offset by lower sales volume and associated gross profit underof our JPF program with the USG. Additionally, USG fuzes under Option 12 sold in the current period were negotiated at a lower selling price than Option 11 sold in the corresponding period in 2016. Further offsetting some of the increase in operating income for three-month fiscal period was $2.5 million in costs related to restructuring activities.
Operating income decreased for the nine-month fiscal period ended September 29, 2017, compared to the corresponding periods in 2016. The decrease was primarily attributable to a decrease in sales and lower gross profit under our JPF program. In addition, operating income decreased, to a lesser extent, due to $2.5 million in costs related to restructuring activities. These decreases were partially offset by increases of $11.5 million, primarily attributable to higher sales and associated gross profit under our commercialdefense bearings products and the SH-2G program with Peru and our AH-1Z program.
Further offsetting some of the decrease in operating income for the nine-month fiscal period were lower S,G&A expenses$0.8 million inventory-step up recorded associated with the saleacquisition of government contract program inventory. For certain USG contracts, S,G&A expenses are capitalized in inventory until revenue is recognized, to the extent that gross profit is available to offset the S,G&A expenses. See the table below for the expense or benefit received from S,G&A expenses capitalized in inventory for certain government contracts.Aircraft Wheel and Brake.
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | September 29,
2017 | | September 30,
2016 |
| | | (in thousands) |
| S,G&A expensed (capitalized in inventory), net | | $ | (252 | ) | | $ | (47 | ) | | $ | 52 |
| | $ | 3,056 |
|
Long-Term ContractsResults of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Net sales | | $ | 46,282 | | | $ | 63,584 | | | $ | 135,098 | | | $ | 195,656 | |
| $ change | | (17,302) | | | (36,039) | | | (60,558) | | | (37,321) | |
| % change | | (27.2) | % | | (36.2) | % | | (31.0) | % | | (16.0) | % |
| | | | | | | | |
| Operating income | | $ | 5,730 | | | $ | 13,792 | | | $ | 11,689 | | | $ | 46,274 | |
| $ change | | (8,062) | | | (12,015) | | | (34,585) | | | (13,538) | |
| % change | | (58.5) | % | | (46.6) | % | | (74.7) | % | | (22.6) | % |
| % of net sales | | 12.4 | % | | 21.7 | % | | 8.7 | % | | 23.7 | % |
For long-term aerospace contracts, we generally recognize
Net Sales
Net sales and cost of sales based on the percentage-of-completion method of accounting, which allows for recognition of revenue as work on a contract progresses. We recognize sales and profit based on either (1) the cost-to-cost method, in which case sales and profit are recorded based upon the ratio of costs incurred to estimated total costs to complete the contract, or (2) the units-of-delivery method, in which case sales are recognized as deliveries are made and cost of sales is computed on the basis of the estimated ratio of total cost to total sales.
Revenue and cost estimates for all significant long-term contracts for which revenue is recognized using the percentage-of-completion method of accounting are reviewed and reassessed quarterly. Based upon these reviews, we record the effects of adjustments in profit estimates each period. If at any time we determine that for a particular contract total costs will exceed total contract revenue, we will record a provision for the entire anticipated contract loss at that time. For the three-month and nine-month fiscal periods ended September 29, 2017, there were net increases in the Company's operating income attributable to changes in contract estimates of $1.1 million and $3.2 million, respectively. These increases were primarily a result of improved performance on the AH-1Z program, JPF program and the SH-2G program with Peru. These improvements were partially offset by cost growth on the K-MAX® and A-10 programs. There were net decreases in the Company's operating income from changes in contract estimates of $1.3 million and $3.9 million, respectively, for the three-month and nine-month fiscal periods ended September 30, 2016.2022 decreased when compared to the corresponding periods in 2021, primarily due to lower sales on the JPF program, the K-MAX® program, certain legacy fuzing programs and the SH-2G program for New Zealand. These decreases were primarily a result of cost growth on various programs, including the Boeing 767/777 program, the A-10 programtotaling $19.2 million and a composites assembly program. For the nine-month fiscal period, these decreases$61.9 million, respectively, were partially offset by improved performancehigher sales on the JPFAMRAAM® fuzing program.
BacklogOperating Income
|
| | | | | | | | |
| | | September 29,
2017 | | December 31,
2016 |
| | | (in thousands) |
| Backlog | | $ | 556,937 |
| | $ | 581,619 |
|
BacklogOperating income for the three-month and nine-month fiscal periods ended September 30, 2022 decreased during the first nine months of 2017 primarily due to deliveries under our JPF programwhen compared to the USGcorresponding periods in 2021, primarily attributable to $7.6 million and foreign militaries$31.0 million in lower gross profit, respectively, driven by the impact of JPF sales discussed above, lower gross profit on the K-MAX® program and work performed on the SH-2G program with Peru. Thisfor New Zealand. Additionally contributing to the decrease was partially offset by orders underare higher research and development costs for the Sikorsky BLACK HAWK helicopter program.KARGO UAV unmanned aerial system.
Major Programs/Product Lines
Below is a discussion of significant changes in the Aerospace segment's major programs within the Precision Products segment during the first nine months of 2017.2022. See our 20162021 Form 10-K, including Item 1A, "Risk Factors", for a complete discussion of our Aerospace segment'smajor programs.
A-10
The segment has contracted with Boeing to produce the wing control surfaces (inboard and outboard flaps, slats and deceleron assemblies) for the USAF’s A-10 fleet. This contract has a potential value of over $110.0 million; however, annual quantities will vary, as they are dependent upon the orders Boeing receives from the USAF. Initial deliveries under this program began in the third quarter of 2010 and full rate production began during the fourth quarter of 2012. Through September 29, 2017, 170 shipsets have been delivered over the life of the program, and approximately 3 shipsets remain in backlog. In 2016, the USAF indicated that they would delay the retirement of the A-10 fleet due to its vital close air support, search and rescue capabilities and the lack of a suitable replacement. We continue to monitor the defense budget and understand that despite this positive indication, the future of this program could be at risk without the continued support of Congress. We have not received any orders for additional shipsets in 2017, and as such, we expect a break in production as we complete the units we currently have on order and wait for follow-on orders from our customer. We have not received any indication from our customer that this program will be terminated. Final production and deliveries of existing orders under this contract are anticipated to be completed during the fourth quarter of 2017. Tooling and nonrecurring costs on this program are being amortized over 242 shipsets, the number of shipsets under the USG program of record. At September 29, 2017 and December 31, 2016, our program backlog was $1.4 million and $5.3 million, respectively, and total program inventory was $9.4 million and $12.8 million, respectively. The current total program inventory includes nonrecurring costs of $8.0 million, which may not be recoverable in the event of an extended break in production or program termination.
FMU-152 A/B – Joint Programmable Fuze (“JPF”)JPF
We manufacture and produce the JPF,FMU 152 A/B (the "JPF"), an electro-mechanical bomb safe and arming device, which allows the settings of a weapon to be programmed in flight. We occasionally experience lot acceptance test failures due to the complexity of the product and the extreme parameters of the acceptance test. Given the maturity of the product, we now generally experience isolated failures, rather than systemic ones. As a result, identifying a root cause can take longer and result in inconsistent delivery quantities from quarter to quarter.
Sales of these fuzes can be direct to the USG, Foreign Military Sales ("FMS") through the USG and direct commercial sales ("DCS"Direct Commercial Sales (“DCS”) to foreign militaries that, although not funded by or sold through the USG, require regulatory approvals from the USG. During 2016, we were awarded DCS contracts totaling $93.0 million.
A total of 6,7736,643 fuzes were delivered to our customers during the third quarter of 2017, which consisted2022, bringing the year-to-date total to 16,682 fuzes for the nine-month fiscal period ended September 30, 2022. We expect to deliver 20,000 to 25,000 fuzes in 2022. Total JPF backlog at September 30, 2022 was $36.3 million, down from $103.4 million at December 31, 2021. We expect to recognize the majority of 1,216this backlog by the end of the year and currently have no additional firm orders, although active interest remains from our DCS customers.
Our JPF program continues to move through its product lifecycle, reflecting the previously announced decision of the United States Air Force ("USAF") to move from the JPF to the FMU-139 D/B (which we do not manufacture and produce) as its primary fuze system. We are currently working to complete Option 16 of our JPF contract with the USG. Like the option before it, Option 16 relates solely to the procurement of fuzes deliveredby or in support of foreign militaries and does not include any sales to the USAF. We currently believe that Option 16 will extend JPF production into early 2023, but we do not expect to receive any additional orders from the USG, either as direct sales to the USG and 5,557 fuzes delivered as direct commercialor indirect sales to foreign governments. A totalmilitaries through the USG. Therefore, the future viability of 22,838 fuzes have been deliveredour JPF program will depend entirely on our ability to market and sell the JPF to foreign
militaries in DCS transactions. We are currently in discussions with two Middle Eastern customers for one or more follow-on orders aggregating a minimum of $45.0 million that would further extend the life of the program, but there can be no assurance as to the receipt, magnitude and timing of these orders. Moreover, any such orders, if received, would be subject to the receipt of all necessary export approvals, licenses and other authorizations needed to effectuate the sales, which are subject to political and geopolitical conditions beyond our control.
Structures Segment
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| | (in thousands) |
| Net sales | | $ | 33,670 | | | $ | 31,853 | | | $ | 92,451 | | | $ | 103,056 | |
| $ change | | 1,817 | | | (5,063) | | | (10,605) | | | (28,004) | |
| % change | | 5.7 | % | | (13.7) | % | | (10.3) | % | | (21.4) | % |
| | | | | | | | |
| Operating income (loss) | | $ | 71 | | | $ | 330 | | | $ | (1,376) | | | $ | (871) | |
| $ change | | (259) | | | 4,202 | | | (505) | | | 1,453 | |
| % change | | (78.5) | % | | 108.5 | % | | (58.0) | % | | 62.5 | % |
| % of net sales | | 0.2 | % | | 1.0 | % | | (1.5) | % | | (0.8) | % |
Net Sales
Net sales for the three-month fiscal period ended September 30, 2022 increased when compared to the corresponding period in 2021, primarily due to higher sales on our programs with Rolls Royce and the Sikorsky Combat Rescue Helicopter program. These increases, totaling $4.3 million, were partially offset by the wind down of the AH-1Z program and lower sales on our Bell Helicopter program.
Net sales for the nine-month fiscal period ended September 30, 2022 decreased when compared to the corresponding period in 2021, primarily due to the wind down of the AH-1Z program, lower sales on our Bell Helicopter program, our Sikorsky UH-60 BLACK HAWK program and certain composite programs and the absence of sales from our former UK Composites business. These decreases, totaling $21.5 million, were partially offset by higher sales on our programs with Rolls Royce and the Sikorsky Combat Rescue Helicopter program.
Operating Income (Loss)
Operating income remained relatively flat for the three-month fiscal period ended September 30, 2022 compared to the comparable period in 2021. We experienced lower sales and associated gross profit on the AH-1Z program and certain composite programs and lower gross profit on the A-10 program. These decreases in gross profit of $2.0 million were mostly offset by higher sales and gross profit on our programs with Rolls Royce, the Boeing P-8A program, the Sikorsky Combat Rescue Helicopter program and the Boeing CH-47 program.
Operating loss remained relatively flat for the nine-month fiscal period ended September 30, 2022 compared to the comparable period in 2021. We experienced lower sales and associated gross profit on the AH-1Z program, our Sikorsky UH-60 BLACK HAWK program, the Bell military helicopter program and certain composite programs. These decreases in gross profit of $4.6 million were mostly offset by higher sales and gross profit on our programs with Rolls Royce, the Sikorsky Combat Rescue Helicopter program and the Boeing P-8A program.
Backlog
| | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| | (in thousands) |
| Engineered Products | | $ | 286,164 | | | $ | 169,144 | |
| Precision Products | | 175,332 | | | 180,082 | |
| Structures | | 304,441 | | | 351,697 | |
| Total Backlog | | $ | 765,937 | | | $ | 700,923 | |
The increase in backlog during the first nine months of 2017. We expect2022 was primarily attributable to deliver 33,000 to 37,000 fuzes in 2017. A significant portionthe addition of these deliveries will be under Option 12$51.7 million of backlog associated with our Aircraft Wheel and Brake acquisition and new orders for our bearings products, our seals, springs and contacts, and our SLAM-ER fuzing program. These increases were partially offset by revenue recognized on the JPF program, with the USG. Fuzes under Option 12 were negotiated atmodification of a lower selling price than Option 11 andSikorsky BLACK HAWK contract which reduced the transition to Option 12 is expected to have an unfavorable margin impact of approximately $6.5 million in 2017.
The Company currently provides the FMU-152 A/B to the USAF and twenty-eight other nations, but the U.S. Navy currently utilizes a different fuze - the FMU-139. In 2015, NAVAIR solicited proposals for a firm fixed price production contract to implement improvements to the performance characteristics of the FMU-139 (such improved fuze having been designated the FMU-139 D/B), and, the USAF had stated that, if and when a contract is awarded and production begins, the fundsquantities associated with the FMU-152 A/B will be redirected to the FMU-139 D/B. During the third quarter of 2015, the U.S. Navy announced that a competitor was awarded the contract for the FMU-139 D/B. In the event the FMU-139 D/B program proceeds as planned and the USAF redirects the funds associated with the FMU-152 A/B to the FMU-139 D/B, our business, financial condition, results of operations and cash flows may be materially adversely impacted. The timing of the impact on our financial statements is dependent on the abilitydeliveries of our competitor to complete the designbearings products and qualification phase of the programsprings, seals and other factors. Our competitor has publicly stated that this program is expected to have a 32-month qualification phase, preceding production. Therefore, the earliest the Company may see an impact on its financial statements is 2019; however, due to the complexity of this program, the uncertainty associated with the successful completion of each phase in accordance with the planned schedule and the pending status of the USAF's final decision to redirect funds to the FMU-139 D/B, the timing and magnitude of the impact on the Company's financial statements is not certain.contacts.
The Company continues to see strong demand for the FMU-152 A/B. We are finalizing Options 13 and 14 with the USG and we have been authorized to begin the procurement of long lead materials for Option 13. Combined, the USG and DCS demand provides near term opportunities of more than $100.0 million. Total JPF backlog at September 29, 2017 and December 31, 2016, was $84.6 million and $175.0 million, respectively, consisting of orders for delivery into 2018.
K-MAX®
During the second quarter of 2015, we announced that our Aerospace segment was resuming production of commercial K-MAX® aircraft. The aircraft are being manufactured at our Jacksonville, Florida and Bloomfield, Connecticut facilities. In the third quarter of 2017, the first three helicopters from the newly reopened commercial production line were accepted by our customers, Lectern Aviation of China and Rotex Helicopter. As of September 29, 2017 and December 31, 2016, our backlog for this program was $6.4 million and $13.7 million, respectively. During the second quarter, we announced that we will continue production of the commercial K-MAX® aircraft into 2019 at a minimum due to continued interest in the capabilities of the K-MAX®.
BLACK HAWK
The Sikorsky BLACK HAWK helicopter cockpit program involves the manufacture of cockpits, including the installation of all wiring harnesses, hydraulic assemblies, control pedals and sticks, seat tracks, pneumatic lines and the composite structure that holds the windscreen for most models of the BLACK HAWK helicopter. In July 2017, we announced that our Aerospace segment had entered into a new multi-year contract with Sikorsky to manufacture H-60 cockpits under the Department of Defense MY IX H-60 procurement authorization. The term of the agreement will be for five years, beginning in 2018 and ending in 2022. As of September 29, 2017 and December 31, 2016, our backlog for this program was $103.1 million and $45.6 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Discussion and Analysis of Cash Flows
We assess liquidity in terms of our ability to generate cash to fund working capital requirements and investing and financing activities. Significant factors affecting liquidity include: cash flows generated from or used by operating activities, capital expenditures, investments in our business segments and their programs, acquisitions, divestitures, dividends, availability of future credit, share repurchase programs, adequacy of available bank lines of credit, and factors that might otherwise affect the company's business and operations generally, as described under the heading “Risk Factors” and “Forward-Looking Statements” in Item 1A of Part I of our 20162021 Form 10-K.
We continue to rely upon bank financing as an important source of liquidity for our business activities including acquisitions. We believe this, when combined with cash generated from operating activities, will be sufficient to support our anticipated cash requirements for the foreseeable future; however, we may decide to borrow additional funds or raise additional equity capital to support other business activities including potential future acquisitions.
We anticipate a variety of items will have an impact on our liquidity during the next 12 months, in addition to our working capital requirements. These could include one or more of the following:
the matters described in Note 11, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements, in addition to the cost of existing environmental remediation matters and deposits required to be made to the environmental escrow for our former Moosup facility;
deferred compensation payments to former directors and officers;
contributions to our qualified pension plan and Supplemental Employees’ Retirement Plan (“SERP”);
repurchase of common stock under the 2015 Share Repurchase Program;
payment of dividends;
costs associated with the start-up of new aerospace programs; and
the extension of payment terms by our customers and delays in letter of credit funding.
In addition, we have an aggregate principal balance of $11.5 million of our 2017 Notes remaining as of September 29, 2017. These notes will remain convertible until the close of business on the second Scheduled Trading Day (as defined in the 2017 Notes indenture) immediately preceding the scheduled maturity date of November 15, 2017, unless earlier redeemed, repurchased or converted. We do not believe any of these matters will lead to a shortage of capital resources or liquidity that would adversely impact our business or results of operations.
We regularly monitor credit market conditions to identify potential issues that may adversely affect, or provide opportunities for, the securing and/or advantageous pricing of additional financing, if any, that may be necessary to continue with our growth strategy and finance working capital requirements.
Management regularly monitors pension plan asset performance and the assumptions used in the determination of our benefit obligation, comparing them to actual performance. We continue to believe the assumptions selected are valid due to the long-term nature of our benefit obligation.
Effective December 31, 2015, our qualified pension plan was frozen with respect to future benefit accruals. Under U.S. Government Cost Accounting Standard (“CAS”) 413 we must calculate the USG’s share of any pension curtailment adjustment calculated resulting from the freeze. Such adjustments can result in an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position. During the fourth quarter of 2016, the Company accrued a $0.3 million liability representing our estimate of the amount due to the USG based on our pension curtailment calculation which was submitted to the USG for review in December. Through the date of this filing there has been no response from the USG on this matter. There can be no assurance that the ultimate settlement of this matter will not have a material adverse effect on our results of operations, financial position and cash flows.
A summary of our consolidated cash flows is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended |
| | | September 30,
2022 | | October 1,
2021 | | 2022 vs. 2021 |
| | | (in thousands) |
| Total cash provided by (used in): | | | | | | |
| Operating activities | | $ | (33,700) | | | $ | 14,123 | | | $ | (47,823) | |
| Investing activities | | (466,528) | | | (15,294) | | | (451,234) | |
| Financing activities | | 391,918 | | | (13,045) | | | 404,963 | |
| | | | | | |
Free Cash Flow (a) | | | | | | |
| Net cash provided by (used in) operating activities | | $ | (33,700) | | | $ | 14,123 | | | $ | (47,823) | |
| Expenditures for property, plant and equipment | | (17,626) | | | (11,364) | | | (6,262) | |
| Free cash flow | | $ | (51,326) | | | $ | 2,759 | | | $ | (54,085) | |
|
| | | | | | | | | | | | |
| | | For the Nine Months Ended |
| | | September 29,
2017 | | September 30,
2016 | | 2017 vs. 2016 |
| | | (in thousands) |
| Total cash provided by (used in): | | | | | | |
| Operating activities | | $ | 43,834 |
| | $ | 70,016 |
| | $ | (26,182 | ) |
| Investing activities | | (23,101 | ) | | (30,809 | ) | | 7,708 |
|
| Financing activities | | (28,499 | ) | | (29,746 | ) | | 1,247 |
|
| | | | | | | |
| Free Cash Flow (a): | | |
| | |
| | |
|
| Net cash provided by operating activities | | $ | 43,834 |
| | $ | 70,016 |
| | $ | (26,182 | ) |
| Expenditures for property, plant and equipment | | (19,874 | ) | | (23,926 | ) | | 4,052 |
|
| Free cash flow | | $ | 23,960 |
| | $ | 46,090 |
| | $ | (22,130 | ) |
(a) Free Cash Flow, a non-GAAP financial measure, is defined as net cash (used in) provided by operating activities less expenditures for property, plant and equipment, both of which are presented in our Condensed Consolidated Statements of Cash Flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for more information regarding Free Cash Flow.
Net cash provided byused in operating activities decreasedwas $33.7 million for the nine-month fiscal period ended September 29, 2017, versus30, 2022, compared to net cash provided of $14.1 million in the comparable period in 2016, primarily due to higher accounts receivables under our JPF program resulting from2021. This change was largely driven by the timing of deliveries, the timingcollection of payments associated withon the 2016 implementation of the productivity and efficiency initiative at our Distribution segmentJPF program, and lower net earnings in the current period, partially offset by lower inventory relatedthe absence of approximately $25.1 million in nonrecurring payments to our K-MAX® program.eligible participants of Bal Seal's employee retention plans, a $10.0 million pension contribution paid in the prior year and the timing of accounts payable.
Net cash used in investing activities decreasedwas $466.5 million for the nine-month fiscal period ended September 29, 2017, versus30, 2022, $451.2 million more than cash used in the comparable period in 2016,2021. This change was primarily dueattributable to a lower earnout payment associated with a previous acquisitionour purchase of Aircraft Wheel and Brake in the current period. Refer to Note 4, Business Combinations and Investments, for further information on this acquisition.
Net cash used inprovided by financing activities decreasedwas $391.9 million for the nine-month fiscal period ended September 29, 2017, versus30, 2022, compared to net cash used of $13.0 million in the comparable period in 2016,2021. This change was primarily due to borrowings on our credit agreement for the acquisition of Aircraft Wheel and Brake in the current period. Refer to Note 13, Debt, for further information on our credit agreement.
We anticipate a variety of items will have an impact on our liquidity during the next twelve months, in addition to our working capital requirements. These could include one or more of the following:
•the matters described in Note 15, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, including the cost to repurchase a portion of the 2017 Notes, repayments under our revolving credit facility, the purchase of the capped call transactions relatedexisting environmental remediation matters;
•contributions to our 2024 Notesqualified pension plan and higher debt issuance Supplemental Employees’ Retirement Plan (“SERP”);
•deferred compensation payments to officers;
•interest payments on outstanding debt;
•income tax payments;
•costs associated with acquisitions and corporate development activities, including the funding of our Aircraft Wheel and Brake acquisition;
•finance and operating lease payments;
•capital expenditures;
•research and development expenditures;
•repurchase of common stock under share repurchase programs;
•payment of dividends;
•costs associated with the issuancestart-up of new programs; and
•the timing of payments and the extension of payment terms by our 2024 Notes. These changes were partially offset by $200.0 millioncustomers.
Financing Arrangements
We continue to rely upon bank financing as an important source of liquidity for our business activities, including acquisitions. We believe this, when combined with cash generated from operating activities, will be sufficient to support our anticipated future cash requirements; however, we may decide to borrow additional funds or raise additional equity capital to support other business activities, including potential future acquisitions. We regularly monitor credit market conditions to identify potential issues that may adversely affect, or provide opportunities for, the securing and/or advantageous pricing of additional financing, if any, that may be necessary to continue with our growth strategy and finance working capital requirements. Refer to Note 14, Debt, in proceeds received from the issuance of our 2024 Notes and $58.6 million in proceeds received related to the unwind a portionConsolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of the convertible note hedge transactions related to the 2017 Notes.
2021 Form 10-K for further information on our Financing ArrangementsArrangements.
Convertible Notes
During the fiscal quarter ending June 30,May 2017, we issued $200.0 million aggregate principal amount of convertible senior unsecured notes due May 2024 (the "2024 Notes") pursuant to an indenture, (the "Indenture"), dated May 12, 2017, between the Company and U.S. Bank National Association, as trustee.trustee (as amended by the First Supplemental Indenture thereto, dated July 15, 2019, the "Indenture"). In connection therewith, we entered into certain capped call transactions that cover, collectively, the number of shares of the Company's common stock underlying the 2024 Notes. In a separate transaction, we repurchased $103.5 million aggregate principal amount of its existing convertible senior unsecured notes due November 15, 2017 (the "2017 Notes"). In connection with the repurchase of the 2017 Notes, we settled a portion of the associated bond hedge transactions and warrant transactions we entered into in 2010 in connection with their issuance. See below for further discussion on the issuance of the 2024 Notes, the repurchase of the 2017 Notes and the related transactions.
2024 Notes
On May 12, 2017, we issued $175.0 million in principal amount of 2024 Notes, in a private placement offering. On May 24, 2017, we issued an additional $25.0 million in principal amount of 2024 Notes pursuant to the initial purchasers' exercise of their overallotment option, resulting in the issuance of an aggregate $200.0 million principal amount of 2024 Notes. The 2024 Notes bear 3.25% interest per annum on the principal amount, payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2017. The 2024 Notes will mature on May 1, 2024, unless earlier repurchased by the Company or converted. We will settle any conversions of the 2024 Notes in cash, shares of the Company's common stock or a combination of cash and shares of common stock, at our election.
UseThe sale of proceeds fromour former Distribution business in the issuancethird quarter of 2019 was deemed to be a "Fundamental Change" and a "Make-Whole Fundamental Change" pursuant to the terms and conditions of the indenture governing the 2024 Notes. As a result, the sale triggered the right of the holders of our 2024 Notes to require us to repurchase all of the 2024 Notes, was as follows:
|
| | | | |
| in thousands | | |
| Proceeds: | | |
| Gross proceeds | | $ | 200,000 |
|
Commission fees and other expenses(1) | | (7,348 | ) |
| Net proceeds | | $ | 192,652 |
|
| Use of Proceeds: | | |
Cost to repurchase $103.5 million aggregate principal amount of 2017 Notes(2) | | $ | (165,308 | ) |
| Cost for capped call transaction related to 2024 Notes | | (20,500 | ) |
Payment made to reduce revolving credit facility(3) | | (6,844 | ) |
| Total use of proceeds | | $ | (192,652 | ) |
(1) Debt issuance fees paid to the counterparties and other expenses (i.e. legal and accounting fees) related to the issuanceor any portion thereof that is a multiple of $1,000 principal amount on September 27, 2019. The aggregate principal amount of the 2024 Notes were capitalized.
(2) Included in this balance is $1.7validly tendered and not validly withdrawn was $0.5 million, representing approximately 0.25% of related accrued interest payments.
(3) Additional payments to the revolving credit facility were made from proceeds received as part of the bond hedge settlement related to the repurchase of the 2017 Notes. See the 2017 Notes section below for further discussion.
The following table illustrates the conversion rate at the date of transaction:
|
| | | | |
| | | May 12, 2017 |
| 2024 Notes | | |
Conversion Rate per $1,000 principal amount (1) | | 15.3227 |
Conversion Price (2) | | $ | 65.2626 |
|
Contingent Conversion Price (3) | | $ | 84.84 |
|
Aggregate shares to be issued upon conversion (4) | | 3,064,540 |
|
(1) Represents the number of shares of Common Stock hypothetically issuable per each $1,000 principal amount of 2024 Notes, subject to adjustments upon the occurrence of certain specified events in accordance with the terms of the Indenture.
(2) Represents $1,000 divided by the conversion rate asall outstanding notes. Holders of such date. The conversion price reflectsnotes received the strike price of the embedded option within the 2024 Notes. If the Company's share price exceeds the conversion price at conversion, the noteholders would be entitled to receive additional consideration either in cash, shares or a combination thereof, the form of which is at the sole discretion of the Company.
(3) Prior to November 1, 2023, the notes are convertible only in the following circumstances: (1) during any fiscal quarter commencing after July 1, 2017, and only during any such fiscal quarter, if the last reported sale price of the Company's common stock was greater than or
equal to 130% of the applicable conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter, (2) during the five consecutive business day period following any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. If the Company undergoes a fundamental change (as defined in the Indenture), holders of the notes may require the Company to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount to be repurchased,of the 2024 Notes being purchased, plus any accrued and unpaid interest. As of September 29, 2017, none of the conditions permitting the holders of the 2024 Notes to convert had been met. Therefore, the 2024 Notes are classified as long-term debt.
(4) This represents the number of shares hypothetically issuable upon conversion of 100% of the outstanding aggregate principal amount of the 2024 Notes at each date; however, the terms of the 2024 Notes state that the Company may pay or deliver, as the case may be, cash, shares of the Company's common stock or a combination of cash and shares of common stock, at the Company's election. The Company currently intends to settle the aggregate principal amount in cash. Amounts due in excess of the principal, if any, also may be settled in cash, shares of the Company's common stock or a combination of cash and shares of common stock, at the Company's election.
In connection with the 2024 Notes offering, we entered into capped call transactions with certain of the initial purchasers or their respective affiliates. These transactions are intended to reduce the potential dilution to the Company's shareholders and/or offset the cash payments we are required to make in excess of the principal amount upon any future conversion of the notes in the event that the market price per share of the Company's common stock is greater than the strike price of the capped call transactions, with such reduction and/or offset subject to a cap based on the cap price of the capped call transactions. Under the terms of the capped call transactions, the strike price ($65.2626) and the cap price ($88.7570) are each subject to adjustment in certain circumstances. In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates entered into various derivative transactions with respect to the Company’s common stock concurrently with or shortly after the pricing of the notes. The capped call transactions, which cost an aggregate $20.5 million, were recorded as a reduction of additional paid-in capital.
The note payable principal balance for the 2024 Notes at the date of issuance of $200.0 million was bifurcated into the debt component of $179.5 million and the equity component of $20.5 million. The difference between the note payable principal balance and the fair value of the debt component representing the debt discount is being accreted to interest expense over the term of the 2024 Notes. The fair value of the debt component was recognized using a 5.0% discount rate, representing the Company's borrowing rate at the date of issuance for a similar debt instrument without a conversion feature with an expected life of seven years.
We incurred $7.4 million of debt issuance costs in connection with the sale of the 2024 Notes, which waswere allocated between the debt and equity components of the instrument.instrument at issuance. Of the total amount, $0.7 million was recorded as an offset to additional paid-in capital. The balance, $6.7 million, was recorded as a contra-debt balance and iswas being amortized over the term of the 2024 Notes. As a result of the adoption of ASU 2020-06, the amount recorded to additional paid-in capital was
reclassified to retained earnings in the cumulative effect adjustment recorded on January 1, 2022. The remaining balance of debt issuance costs is being amortized over the term of the convertible notes. Total amortization expense for the three-month fiscal periods ended September 30, 2022 and October 1, 2021 was $0.3 million in both periods. Total amortization expense for the nine-month fiscal periods ended September 29, 201730, 2022 and October 1, 2021 was $0.2 million and $0.3 million.
2017 Notes
In November 2010, we issued convertible senior unsecured notes due on November 15, 2017, in the aggregate principal amount of $115.0$0.8 million in a private placement offering. These notes bear 3.25% interest per annumboth periods. Refer to Note 2, Recent Accounting Standards, for further information on the principal amount, payable semiannually in arrears on May 15adoption and November 15impacts of each year, beginning in 2011. In May 2017, we used a portion of the net proceeds from the issuance of the 2024 Notes, along with cash received from the counterparties in connection with the termination of the existing convertible note hedge transactions referred to below, to repurchase $103.5 million principal amount of the 2017 Notes from a limited number of holders in an arm's length transaction. This repurchase represented approximately 90% of the aggregate principal amount of 2017 Notes. The repurchases were accounted for as an extinguishment of the outstanding instrument. Of the total aggregate cost of $165.3 million, $60.0 million was allocated to the equity component of the 2017 notes and was recorded as a reduction to additional paid-in capital. The remainder of the cost was attributed to the outstanding principal repurchased and accrued interest. As of September 29, 2017, $11.5 million principal amount remains outstanding under the 2017 Notes.ASU 2020-06.
The repayment of a portion of the 2017 Notes was not contingent upon the issuance of the 2024 Notes. As such, the repurchase of the 2017 Notes was accounted for as a debt extinguishment.
See below for further details on the loss on extinguishment:
|
| | | | |
| in thousands | | |
| Carrying value of 2017 Notes | | $ | 113,943 |
|
| | | |
| Carrying value of Redeemed Debt | | $ | 102,548 |
|
Fair value of Consideration Transferred(1) | | 103,637 |
|
Loss on extinguishment of 2017 Notes(2) | | $ | (1,089 | ) |
Acceleration of debt issuance cost @ 90%(3) | | (297 | ) |
Total loss on extinguishment of 2017 Notes(4) | | $ | (1,386 | ) |
(1) The fair value of consideration transferred was calculated using a discount rate of 3%, representing the Company's borrowing rate at the date of issuance for a similar debt instrument with a remaining expected life of six months (for the 2017 Notes).
(2) The majority of this balance relates to the write-off of approximately $1.0 million, 90% of the unamortized debt discount.
(3 The Company determined that in connection with the repurchase of the 2017 Notes, 90% of the unamortized debt issuance costs should be written off, representing the approximate outstanding portion of these costs related to the notes purchased.
(4) This loss is included in interest expense, net on the Company's Consolidated Statement of Operations.
In connection with the 2017 Notes, we had entered into convertible note hedge transactions and warrant transactions ("existing call spread transactions") with certain financial institutions. These transactions were accounted for as equity instruments at the time of issuance in 2010. With the intention of repurchasing the 2017 Notes, we entered into agreements with these financial institutions to terminate a portion of the existing call spread transactions concurrently with the offering. In connection with these transactions, we received $58.6 million in payments related to the unwind of 90% of the convertible note hedge transactions and made deliveries of 624,044 shares of the Company's common stock in connection with the partial unwind of the warrant transactions. We used a portion of the proceeds from the bond hedge settlement to repurchase the 2017 Notes as described above and to make a payment to the revolving credit facility. The cash proceeds received were recorded as an increase of additional paid-in-capital which was partially offset by the delivery of shares.
The remaining portion of the 2017 Notes are convertible at the option of the noteholders until the close of business on the second Scheduled Trading Day (as defined in the 2017 Notes indenture) immediately preceding the maturity date. Accordingly, the remaining carrying amount of the 2017 Notes was recorded in current liabilities and a portion of the equity component, representing the unamortized debt discount, was reclassified from additional paid-in capital to temporary equity on the Company's Condensed Consolidated Balance Sheet as of September 29, 2017.
Credit Agreement
On May 6, 2015, weDecember 13, 2019, the Company closed on an amended and restated $700.0$800.0 million Credit Agreement.Agreement (the "Credit Agreement") with JPMorgan Chase Bank, N.A., as Administrative Agent and as Collateral Agent. The Credit Agreement matures on December 13, 2024 and consists of revolving commitments of $800.0 million. Capitalized terms used inbut not defined within this discussion of the Credit Agreement but not defined herein have the meanings ascribed thereto in the Credit Agreement, which with amendments is included as amended. The Credit Agreement amends and restatesExhibit 10.43 to our previously existing credit facility to, among other things: (i) extend the maturity date to May 6, 2020; (ii) increase the aggregate amount of revolving commitments from $400.0 million to $600.0 million; (iii) reinstate the aggregate amount of outstanding Term Loans to $100.0 million; (iv) modify the affirmative and negative covenants set forth in the facility; and (v) effectuate a number of additional modifications to the terms and provisions of the facility, including its pricing. On May 8, 2017, we entered into Amendment No. 1 to the Credit Agreement to permit the offering of the 2024 Notes and the entering into of the related capped call transactions.2021 Form 10-K.
The term loan commitment requires quarterly payments of principal (which commenced on June 30, 2015) at the rate of $1.25 million, increasing to $1.875 million on June 30, 2017, and then to $2.5 million on June 30, 2019, with $65.0 million payable in the final quarter of the facility's term. The facility includes an accordion feature that allows us to increase the aggregate amount available to up to $900.0 million with additional commitments from the Lenders.
Interest rates on amounts outstanding under the Credit Agreement are variable and are determined based on LIBOR. The LIBOR benchmark has been the Consolidated Seniorsubject of national, international, and other regulatory guidance and proposals for reform. These reforms may cause LIBOR to perform differently than in the past, and LIBOR may ultimately cease to exist. Alternative benchmark rate(s) may replace LIBOR and could affect the Company's debt securities, derivative instruments, receivables, debt payments and receipts. An alternative rate may create additional basis risk for market participants as an alternative index is utilized alongside LIBOR. Key regulatory authorities have requested that banks cease entering into new contracts that use USD LIBOR as a reference rate, and do not permit new or existing non-USD LIBOR borrowings, by no later than December 31, 2021. Additionally, the Alternative Reference Rates Committee has recommended replacing USD LIBOR with the Secured Overnight Financing Rate (“SOFR”), which is calculated by short-term repurchase agreements.
In 2021, the Company amended its Credit Agreement to move its LIBOR benchmark for non-USD borrowings to other non-USD benchmark rates. Future USD borrowings under our current Credit Agreement will continue to be based on LIBOR until it is phased out, at which time such borrowings will be based on SOFR. At this time, it is not possible to predict the effect of any changes to LIBOR, the phase out of LIBOR or any establishment of alternative benchmark rates. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact our contracts that terminate within 2023. There is uncertainty about how applicable law, the courts or the Company will address the replacement of LIBOR with alternative rates on variable rate retail loan contracts and other contracts that do not include alternative rate fallback provisions.
On May 31, 2022, the Credit Agreement was further amended to, among other things, adjust the Total Net Leverage Ratio. Ratio financial covenant in anticipation of the consummation of the announced acquisition of Parker's Aircraft Wheel and Brake division. Refer to Note 13, Debt, for further information on this amendment.
At September 29, 2017, the interest rate for the30, 2022, $412.0 million was outstanding amounts on bothunder the revolving credit facility and term loan commitmentfacility. The interest rate at September 30, 2022 was 2.56%3.94%. In addition, weWe are required to pay a quarterly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.175%0.150% to 0.300%0.250% per annum, based on the Consolidated
Senior Secured Net Leverage Ratio. Fees for outstanding letters of credit range from 1.25%1.125% to 2.00%1.625%, based on the Consolidated Senior Secured Net Leverage Ratio.
The financial covenants associated with the Credit Agreement include a requirement that (i) the Consolidated Senior Secured Leverage Ratio cannot be greater than 3.50 to 1.00, with an available election to increase the maximum to 3.75 to 1.00 for four consecutive quarters in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (ii) the Consolidated Total Leverage Ratio cannot be greater than 4.00 to 1.00, with an available election to increase the maximum to 4.25 to 1.00 for four consecutive quarters in connection with a Permitted Acquisition with consideration in excess of $125.0 million; (iii) the Consolidated Interest Coverage Ratio cannot be less than 4.00 to 1.00; and (iv) Liquidity: (a) as of the last day of the fiscal quarter of the Company ending two full fiscal quarters prior to the stated maturity of the 2017 Notes, cannot be less than an amount equal to 50% of the outstanding principal amount of the 2017 Notes, and (b) as of the last day of each fiscal quarter of the Company ending thereafter, cannot be less than an amount equal to the outstanding principal amount of the Specified Convertible Notes as of such day. We were in compliance with the financial covenants as of and for the quarter ended September 29, 2017, and do not anticipate noncompliance in the foreseeable future.
Total average bank borrowings during the quarternine-month fiscal period ended September 29, 2017,30, 2022 were $269.7 million compared to $315.6 million for$24.1 million. There were no bank borrowings during the year ended December 31, 2016. As of September 29, 2017 and December 31, 2016, there was $451.5 million and $381.7 million available for borrowing, respectively, under2021.
The following table shows the Revolving Credit Facility, net of letters of credit. However, based on EBITDA levels at September 29, 2017 and December 31, 2016, amounts available for borrowing were limitedunder the Company's revolving credit facility:
| | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 |
| In thousands | | |
| Total facility | | $ | 800,000 | | | $ | 800,000 | |
| Amounts outstanding, excluding letters of credit | | 412,000 | | | — | |
| Amounts available for borrowing, excluding letters of credit | | 388,000 | | | 800,000 | |
Letters of credit under the credit facility(1)(2) | | 51,630 | | | 92,646 | |
| Amounts available for borrowing | | $ | 336,370 | | | $ | 707,354 | |
| | | | |
| Amounts available for borrowing subject to EBITDA, as defined by the Credit Agreement | | $ | 30,221 | | | $ | 409,914 | |
(1) The Company has entered into standby letters of credit issued on the Company's behalf by financial institutions, and directly issued guarantees to $165.2 millionthird parties primarily related to advances received from customers and $209.5 million, respectively.the guarantee of future performance on certain contracts. Letters of credit generally are generally considered borrowingsavailable for purposes ofdraw down in the Revolving Credit Facility. A total of $6.7event the Company does not perform its obligations.
(2) Of these amounts, $46.1 million and $5.9$86.3 million in letters of credit was outstanding underrelate to a JPF DCS contract in the Revolving Credit Facility as of periods ended September 29, 201730, 2022 and December 31, 2016,2021.
Debt issuance costs in connection with the Credit Agreement have been capitalized and are being amortized over the term of the agreement. In 2019, we incurred $3.6 million of debt issuance costs in connection with the amendment and restatement of the Credit Agreement. An additional $4.2 million of debt issuance costs were incurred in connection with the amendment of the Credit Agreement in 2022. Total amortization expense for the three-month fiscal periods ended September 30, 2022 and October 1, 2021 was $0.7 million and $0.2 million, respectively. Total amortization expense for the nine-month fiscal periods ended September 30, 2022 and October 1, 2021 was $1.2 million and $0.6 million, respectively.
Other Sources/Uses of Capital
We contributedNear Earth Autonomy
Concurrent with the $10.0 million investment we made into Near Earth Autonomy, we entered into a Master Technology Maturation Agreement for a five-year initial term. The agreement requires the Company to contract with Near Earth Autonomy for a minimum spend of $1.0 million per year of the Company's own funds or $2.0 million per year from any source of revenue arranged by the Company.
Letters of Credit
Of the standby letters of credit under our credit facility, $46.1 million in letters of credit relate to a JPF DCS contract, including the offset agreement. In the event that we default on the contract and we are unable to fulfill our contractual obligations, our customer has the ability to draw on the letters of credit.
Pension Plans
Management regularly monitors pension plan asset performance and the assumptions used in the determination of our benefit obligation, comparing them to actual performance. We continue to believe the assumptions selected are valid due to the long-term nature of our benefit obligation.
No contributions are expected to be made to the qualified pension plan and $2.9during 2022. The Company contributed $0.4 million to the SERP through the end of the third quarter. We do not expect to make any further contributions to the qualified pension plan during 2017. We planquarter of 2022 and plans to contribute an additional $0.2$0.1 million to the SERP in 2017.2022. For the 20162021 plan year, wethe Company contributed $10.0 million to the qualified pension plan and $0.5$2.7 million to the SERP.
Effective December 31, 2015, our qualified pension plan was frozen with respect to future benefit accruals. Under USG Cost Accounting Standard (“CAS”) 413, we must calculate the USG’s share of any pension curtailment adjustment calculated resulting from the freeze. Such adjustments can result in an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position. During the fourth quarter of 2016, we accrued a $0.3 million liability representing our estimate of the amount due to the USG based on our pension curtailment calculation, which was submitted to the USG for review in December 2016. We have maintained our accrual at $0.3 million as of September 30, 2022. There can be no assurance that the ultimate resolution of this matter will not have a material adverse effect on our results of operations, financial position and cash flows.
Share-based Arrangements
As of September 30, 2022, future compensation costs related to non-vested stock options, restricted stock grants and performance stock grants is $11.4 million. The Company anticipates that this cost will be recognized over a weighted-average period of 2.0 years.
Stock Repurchase Plans
On April 29, 2015,20, 2022, we announced that our Board of Directors approved a share repurchase program ("20152022 Share Repurchase Program") authorizing the repurchase of up to $100.0$50.0 million of the common stock, par value $1.00 per share, of the Company. This new program replaced our 2000 Stock Repurchase Program. We currently intend to repurchase shares to offset the annual issuance of shares under our employee stock plans, but the timing and actual number of shares repurchased will depend on a variety of factors including stock price, market conditions, corporate and regulatory requirements, capital availability and other factors, including acquisition opportunities. As of September 29, 2017, we had repurchased 722,000 shares underThis plan replaces the 2015 Share Repurchase Program and approximately $68.7 million remained available for repurchases under this authorization.authorization approved in April 2015.
NON-GAAP FINANCIAL MEASURES
Management believes the non-GAAP (Generally Accepted Accounting Principles) measures used in this report provide investors with important perspectives into our ongoing business performance. We do not intend for the information to be considered in isolation or as a substitute for the related GAAP measures. Other companies may define the measures differently. We define the non-GAAP measures used in this report and other disclosures as follows:
Organic Sales
Organic Sales is defined as "Net Sales" less sales derived from acquisitions completed or businesses disposed of that did not qualify for accounting as a discontinued operation during the precedingprevious twelve months. We believe that this measure provides management and investors with a more complete understanding of underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, which can obscure underlying trends. We also believe that presenting Organic Sales separately for our segments provides management and investors with useful information about the trends impacting our segmentsoperations and enables a more direct comparison to other businesses and companies in similar industries. Management recognizes that the term "Organic Sales" may be interpreted differently by other companies and under different circumstances. The following table illustrates the calculation of Organic Sales using the GAAP measure, "Net Sales".
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Organic Sales (in thousands) | | | | |
| | For the Three Months Ended | | For the Nine Months Ended |
| | September 30,
2022 | | October 1,
2021 | | September 30,
2022 | | October 1,
2021 |
| Net sales | | $ | 172,004 | | | $ | 179,836 | | | $ | 490,818 | | | $ | 533,846 | |
| Acquisition sales | | 2,748 | | | — | | | 2,748 | | | — | |
| Sales of disposed businesses that did not qualify for discontinued operations | | 166 | | | 191 | | | 929 | | | 2,295 | |
| Organic Sales | | $ | 169,090 | | | $ | 179,645 | | | $ | 487,141 | | | $ | 531,551 | |
|
| | | | | | | | | | | | | | | | |
| Organic Sales (in thousands) | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| September 29,
2017 |
| September 30
2016 |
| September 29,
2017 |
| September 30
2016 |
| Distribution |
|
|
|
|
|
|
|
|
| Net sales |
| $ | 267,641 |
|
| $ | 274,388 |
|
| $ | 817,965 |
|
| $ | 849,104 |
|
| Acquisition Sales |
| — |
|
| 1,128 |
|
| — |
|
| 4,681 |
|
| Organic Sales |
| $ | 267,641 |
|
| $ | 273,260 |
|
| $ | 817,965 |
|
| $ | 844,423 |
|
| Aerospace |
|
|
|
|
|
|
|
|
|
|
|
|
| Net sales |
| $ | 179,405 |
|
| $ | 179,086 |
|
| $ | 514,028 |
|
| $ | 526,210 |
|
| Acquisition Sales |
| — |
|
| 18,037 |
|
| — |
|
| 53,418 |
|
| Organic Sales |
| $ | 179,405 |
|
| $ | 161,049 |
|
| $ | 514,028 |
|
| $ | 472,792 |
|
| Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
| Net sales |
| $ | 447,046 |
|
| $ | 453,474 |
|
| $ | 1,331,993 |
|
| $ | 1,375,314 |
|
| Acquisition Sales |
| — |
|
| 19,165 |
|
| — |
|
| 58,099 |
|
| Organic Sales |
| $ | 447,046 |
|
| $ | 434,309 |
|
| $ | 1,331,993 |
|
| $ | 1,317,215 |
|
Organic Sales per Sales Day
Organic Sales per Sales Day is defined as GAAP "Net sales of the Distribution segment" less sales derived from acquisitions completed during the preceding twelve months divided by the number of Sales Days in a given period. Sales Days are the days that the Distribution segment's branch locations were open for business and exclude weekends and holidays. Management believes Organic Sales per Sales Day provides an important perspective on how net sales may be impacted by the number of days the segment is open for business and provides a basis for comparing periods in which the number of sales days differs.
Free Cash Flow
Free Cash Flow is defined as GAAP “Net cash provided by (used in) operating activities” in a period less “Expenditures for property, plant & equipment” in the same period. Management believes Free Cash Flow provides an important perspective on our ability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it may exclude certain mandatory expenditures such as repayment of maturing debt and other contractual obligations. Management uses Free Cash Flow internally to assess overall liquidity.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
ThereIn the third quarter of 2022, we entered into a contractual obligation for licenses related to the implementation and upgrade of an enterprise resource planning ("ERP") system for three of our business units. These license costs of $6.5 million will be incurred over a five-year period.
Other than the item noted above, there have been no material changes outside the ordinary course of business in our contractual obligations or off-balance sheet arrangements during the first nine months of 2017.2022. See our 20162021 Form 10-K for a discussion of our contractual obligations and off-balance sheet arrangements.
CRITICAL ACCOUNTING ESTIMATES
Preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements in the Company’s 20162021 Form 10-K describe the critical accounting estimates and significant accounting policies used in preparing the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. There have been no significant changes in the Company's critical accounting estimates and significant accounting policies in 2017.
RECENT ACCOUNTING STANDARDS
Information regarding recent changes in accounting standards is included in Note 2, Recent Accounting Standards, of the Notes to Condensed Consolidated Financial Statements in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in the Company’s exposure to market risk during the first nine months of 2017.2022. See the Company’s 20162021 Form 10-K for a discussion of the Company’s exposure to market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended, as of September 29, 2017.30, 2022. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 29, 2017,30, 2022, our disclosure controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
There was no change into our internal control over financial reporting that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are
The Company is in the process of implementing a new enterprise-wide business system for our Distribution segment. In orderAircraft Wheel and Brake division. Prior to minimize disruptions to our ongoing operationsgo-live, we are utilizing IT services from Parker-Hannifin under the transaction services agreement. We have developed a project plan that takes a phased approach tofor the implementation andwhich includes appropriate contingency plans.contingencies. The implementation of the new ERP system will likely affect the processes that constitute our internal control over financial reporting and will require testing for the Distribution segment.effectiveness.
PART II
Item 1. Legal Proceedings
General
From time to time, as a normal incident of the nature and kinds of businesses in which the Company and its subsidiaries are, and were, engaged, various claims or charges are asserted and legal proceedings are commenced by or against the Company and/or one or more of its subsidiaries. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters that we consider to be probable and that can be reasonably estimated. Gain contingencies, if any, are recognized when they are realized and legal costs generally are expensed when incurred.
We evaluate, on a quarterly basis, developments in legal proceedings that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. Our loss contingencies are subject to substantial uncertainties, however, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement postures of the parties. Because of these uncertainties, management has determined that, except as otherwise noted below, the amount of loss or range of loss that is reasonably possible in respect of each matter described below (including any reasonably possible losses in excess of amounts already accrued), is not reasonably estimable.
While it is not possible to predict the outcome of these matters with certainty, based upon available information, management believes that all settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in legal proceedings and that can be reasonably estimated are accrued for at September 29, 2017.30, 2022. Despite this analysis, there can be no assurance that the final outcome of these matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
As of September 29, 2017,30, 2022, neither the Company nor any of its subsidiaries iswas a party, nor iswas any of its or their property subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company and its subsidiaries. Additional information relating to certain of these matters is set forth in Note 11, 15, Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements.
Environmental Matters
The Company and its subsidiaries are subject to numerous U.S. Federal,federal, state and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues concerning activities at our facilities or former facilities or remediation as a result of past activities (including past activities of companies we have acquired). From time to time, we receive notices from the U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the “Superfund Act”) and/or equivalent laws. Such notices assert potential liability for cleanup costs at various sites, which may include sites owned by us, sites we previously owned and treatment or disposal sites not owned by us, allegedly containing hazardous substances attributable to us from past operations. While it is not possible to predict the outcome of these proceedings, in the opinion of management, any payments we may be required to make as a result of all such claims in existence at September 29, 2017,30, 2022, will not have a material adverse effect on our business, financial condition and results of operations or cash flows.
Asbestos Litigation
Like many other industrial companies, the Company and/or one of its subsidiaries may be named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos integrated into certain products sold or distributed by the Company and/or the named subsidiary. A substantial majority of these asbestos-related claims have been covered by insurance or other forms of indemnity or have been dismissed without payment. The rest have been resolved for amounts that are not material to the Company, either individually or in the aggregate. Based on information currently available, we do not believe that the resolution of any currently pending asbestos-related matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.
Item 1A. Risk Factors
Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition and cash flows as set forth under Item 1A. “Risk Factors” in our 20162021 Form 10-K. From time to time we disclose changes to risk factors that have been previously disclosed. See below for information regarding changes to our risk factors since the filing of our 2016 Form 10-K. Other than the information presentedExcept as set forth below, we do not believe there have been any material changes to the risk factors previously disclosed in our 20162021 Form 10-K.10-K, but we may disclose changes to such factors or disclose additional factors from time to time in future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position and cash flows.
Our business, results of operations, financial condition and cash flows have been and are expected to continue to be adversely impacted by the ongoing COVID-19 pandemic.
The COVID-19 pandemic has created significant disruption and uncertainty in the global economy. Although the end of the COVID-19 pandemic is approaching, its impact has resulted in business and manufacturing disruptions, plant closures, inventory shortages, delivery delays, supply chain disruptions, and order reductions, cancellations and deferrals, all of which have adversely affected our business, results of operations, financial condition and cash flows. Although we continue to meet the demands of our operationscustomers, we have seen some disruptions in our supply chain, such as delays in materials and components used in our manufacturing process, and we continue to operate below pre-pandemic levels for certain commercial aerospace products. We are conducted through joint ventures,encouraged by the recoveries for these products and the strong order intake we saw in the first nine months of 2022; however, the extent to which entail special risks.
The Company has a 49% equity interest in Kineco-Kaman Composites - India Private Limited, a composites manufacturing joint venture located in Goa, India. The Company relies significantlyCOVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, the servicesseverity and skills of its joint venture partner to manage and conduct the local business operationsduration of the joint venturepandemic and ensure compliance with all applicable lawsthe effectiveness of actions taken globally to contain or mitigate its effects. Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business due to any resulting economic recession or depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and regulations. Ifother capital markets which has, and may continue to, adversely impact our joint venture partner failsstock price and our ability to perform these functions adequately,access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may adverselyalso have the effect of heightening many of the other risks described in this report and the Company’s 2021 Form 10-K, such as those relating to our products and financial performance.
Our future operating results will be impacted by changes in global economic and political conditions.
Our future operating results and liquidity are expected to be impacted by changes in general economic and political conditions which may affect, among other things, the following:
•The availability of credit and our ability to obtain additional or renewed bank financing, the lack of which could have a material adverse impact on our business, financial condition and results of operations and may limit our ability to invest in capital projects and planned expansions or to fully execute our business strategy;
•Market rates of interest, any increase in which would increase the interest payable on some of our borrowings and adversely impact our cash flows. Moreover, ifflow;
•Inflation, which has caused our joint venture partner failssuppliers to honor itsraise prices that we may not be able to pass on to our customers, which could adversely impact our business, including competitive position, market share and margins;
•The investment performance of our pension plan, as well as the associated discount rate, any adverse changes in which may result in a deterioration in the funded status of the plan and an increase in required contributions and plan expense;
•The relationship between the U.S. dollar and other currencies, any adverse changes in which could negatively impact our financial obligationsresults;
•The ability of our customers to commit capital, equitypay for products and services on a timely basis, any adverse change in which could negatively impact sales and cash flows and require us to increase our bad debt reserves;
•The volume of orders we receive from our customers, any adverse change in which could result in lower operating profits as well as less absorption of fixed costs due to a decreased business base;
•The ability of our suppliers to meet our demand requirements, maintain the pricing of their products or credit supportcontinue operations, any of which may require us to the joint venture as a resultfind and qualify new suppliers;
•The issuance and timely receipt of financial or other difficulties or for any other reason, the joint venture may be unable to perform contracted services or deliver contracted products unless we provide the necessary capital, equity or credit support.
Economic conditionsexport approvals, licenses and regulatory changes leading up to and following the United Kingdom’s ("UK") likely exitauthorizations from the European Union ("EU")U.S. Government, the lack or untimely receipt of which could have a material adverse effect on our business, financial condition and results of operations. operations;
We have business operations in both the UK•The political stability and the broader EU. In June 2016, a majorityleadership of voters in the UK elected to withdraw from the EU in a national referendum, and in March 2017, the UK gave notice to the EU that it was formally initiating the withdrawal process. The terms of any withdrawal are subject to a negotiation period that could last up to two years from that date, unless the time period is extended. The referendum and withdrawal process have created significant uncertainty about the future relationship between the UK and the EU, and have given rise to calls for the governments of other EU member states to consider withdrawal.
These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future UK laws and regulations as the UK determines which EU laws to replace or replicate in the course of its withdrawal, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the UK, increase costs, depress economic activity and restrict our access to capital. If the UK and the EU are unable to negotiate acceptable withdrawal terms or if other EU member states pursue withdrawal, barrier-free access between the UK and other EU member states or among the European economic area overall could be diminished or eliminated. Any of these factors could have a direct or indirect impact on our business in the UK and EU,countries where our customers and suppliers reside, including military activity, training and threat levels, any adverse changes in which could negatively impact our financial results, such as the UKeffects of the ongoing war in Ukraine. These effects include adverse impacts on energy availability and EUprices, natural materials availability and our business outsidepricing, sanctions, loss of company markets and financial market impacts; and
•The volatility in equity capital markets which may continue to adversely affect the UK and EU. Any of these factors could have a material adverse effect on our business, financial condition and results of operations and reduce themarket price of our common stock.shares, which may affect our ability to fund our business through the sale of equity securities and retain key employees through our equity compensation plans.
Exports of certain ofWhile general economic and political conditions have not impaired our products are subjectability to various export control regulationsaccess credit markets and authorizations, and we may notfinance our operations to date, there can be successful in obtaining the necessary U.S. Government approvals and resultant export licenses for proposed sales to certain foreign customers.
We must comply with various laws and regulations relating to the export of our products and technology, including a requirement to obtain the necessary export approvals and/or other licenses or authorizations from the U.S. Government before we are permitted to sell certain products and technologies outside of the United States. We can give no assurance that we will not experience future adverse effects that may be successfulmaterial to our cash flows, competitive position, financial condition, results of operations or our ability to access capital.
We expect to complete JPF production under our USG contract in obtainingearly 2023, so the future viability of our JPF program will depend on our ability to market and sell the FMU 152 A/B to foreign militaries in direct commercial sales transactions.
Our JPF program continues to move through its product lifecycle, reflecting the previously announced decision of the United States Air Force ("USAF") to move from the FMU 152 A/B (the "JPF") (which we manufacture and produce) to the FMU-139 D/B (which we do not manufacture and produce) as its primary fuze system. We are currently working to complete Option 16 of our JPF contract with the USG. Like the option before it, Option 16 relates solely to the procurement of fuzes by or in support of foreign militaries and does not include any sales to the USAF. We currently believe that Option 16 will extend JPF production into early 2023, but we do not expect to receive any additional orders from the USG, either as direct sales to the USG or indirect sales to foreign militaries through the USG. Therefore, the future viability of our JPF program will depend entirely on our ability to market and sell the JPF to foreign militaries in direct commercial sales (“DCS”) transactions. As of September 30, 2022, our total JPF backlog was $36.3 million, and we expect to recognize substantially all of the backlog by the end of the year. While we have no additional firm orders, we are currently in discussions with two Middle Eastern customers for one or more follow-on orders aggregating a minimum of $45.0 million that would further extend the life of the program, but there can be no assurance as to the receipt, magnitude and timing of these orders. Moreover, any such orders, if received, would be subject to the receipt of all necessary export approvals, licenses orand other authorizations needed to effectuate the sales, which are subject to political and geopolitical conditions beyond our control. In the event that we are unable to successfully market and sell the JPF to foreign militaries in DCS transactions in a timely manner at prices and in quantities that would continue to support production at current levels, we would need to reassess the future viability of the business, and the extent to which it may be necessary or at all. Any significant delayadvisable to institute a temporary gap in production or facility consolidation. The occurrence of either of these events may indicate a triggering event for impairment of some or all of the goodwill associated with the KPP-Orlando reporting unit, a division of the Precision Products segment which manufactures and produces the JPF.
We have increased debt and high leverage, which could have a negative impact on our financing options and liquidity position and which could adversely affect our business.
As of September 30, 2022, we had $611.5 million in long-term debt outstanding. Additionally, our secured revolving credit facility has a remaining borrowing capacity of $30.2 million, subject to EBITDA, as of September 30, 2022 (all of which would be secured when drawn).
Our overall leverage and the terms of our financing arrangements could:
•limit our ability to sell productsobtain additional financing in the future for working capital, capital expenditures or technologies outsideacquisitions, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity, particularly if any ratings assigned to our debt securities by ratings organizations were revised downward;
•make it more difficult for us to satisfy the terms of our obligations under the terms of our financing arrangements;
•limit our ability to refinance our indebtedness on terms acceptable to us, or at all;
•limit our flexibility to plan for and to adjust to changing business and market conditions in the industries in which we operate and increase our vulnerability to general adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements;
•increase our vulnerability to adverse economic or industry conditions; and
•subject us to higher levels of indebtedness than our competitors, which may cause a competitive disadvantage and may reduce our flexibility in responding to increased competition.
Our ability to meet expenses and debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including the impact of the United States could have a material adverse effect onCOVID-19 pandemic, the inflationary environment, rising interest rates, potential changes in consumer and customer preferences and behaviors, the success of product and marketing innovation and pressure from competitors. If we do not generate enough cash to pay our business, financial condition and resultsdebt service obligations, we may be required to refinance all or part of operations.our existing debt, sell assets, borrow more money or issue additional equity.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements also may be included in other publicly available documents issued by the Company and in oral statements made by our officers and representatives from time to time. These forward-looking statements are intended to provide management's current expectations or plans for our future operating and
financial performance, based on assumptions currently believed to be valid. They can be identified by the use of words such as "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "strategy," "future," "likely," "may," "should," "would," "could," "will" and other words of similar meaning in connection with a discussion of future operating or financial performance. Examples of forward looking statements include, among others, statements relating to future sales, earnings, cash flows, results of operations, uses of cash and other measures of financial performance.
Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and other factors that may cause the Company's actual results and financial condition to differ materially from those expressed or implied in the forward-looking statements. Such risks, uncertainties and other factors include, among others: (i) changes in domestic and foreign economic and competitive conditions in markets served by the Company, particularly the defense, commercial aviation and industrial production markets; (ii) changes in government and customer priorities and requirements (including cost-cutting initiatives, government and customer shut-downs, the potential deferral of awards, terminations or reductions of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional actions or automatic sequestration); (iii) the global economic impact of the COVID-19 pandemic; (iv) risks and uncertainties associated with the successful integration of our Aircraft Wheel and Brake acquisition; (v) changes in geopolitical conditions in countries where the Company does or intends to do business; (iv)(vi) the successful conclusion of competitions for government programs (including new, follow-on and successor programs) and thereafter successful contract negotiations with government authorities (both foreign and domestic) for the terms and conditions of the programs; (v)(vii) the timely receipt of any necessary export approvals and/or other licenses or authorizations from the U.S. Government; (vi)USG; (viii) timely satisfaction or fulfillment of material contractual conditions precedents in customer purchase orders, contracts, or similar arrangements; (vii)(ix) the existence of standard government contract provisions permitting renegotiation of terms and termination for the convenience of the government; (viii)(x) the successful resolution of government inquiries or investigations relating to our businesses and programs; (ix)(xi) risks and uncertainties associated with the successful implementation and ramp up of significant new programs, including the ability to manufacture the products to the detailed specifications required and recover start-up costs and other investments in the programs; (x)(xii) potential difficulties associated with variable acceptance test results, given sensitive production materials and extreme test parameters; (xi)(xiii) the receipt and successful execution of production orders under the Company's existing U.S. governmentUSG JPF contract, including the exercise of all contract options and receipt of orders from allied militaries, but excluding any next generation programmable fuze programs, as all have been assumed in connection with goodwill impairment evaluations; (xii)(xiv) the continued support of the existing K-MAX® helicopter fleet, including sale of existing K-MAX® spare parts inventory and the receipt of orders for new aircraft sufficient to recover our investmentinvestments in the restart of the K-MAX® production line; (xiii)(xv) the accuracy of current cost estimates associated with environmental remediation activities; (xiv)(xvi) the profitable integration of acquired businesses into the Company's operations; (xv)(xvii) the ability to implement our ERP systems in a cost-effective and efficient manner, limiting disruption to our business, and allowing us to capture their planned benefits while maintaining an adequate internal control environment; (xvi)recover from cyber-based or other security attacks, information technology failures or other disruptions; (xviii) changes in supplier sales or vendor incentive policies; (xvii)(xix) the ability of our suppliers to satisfy their performance obligations, including any supply chain disruptions; (xx) the effects of price increases or decreases; (xviii)(xxi) the effects of pension regulations, pension plan assumptions, pension plan asset performance, future contributions and the pension freeze, including the ultimate determination of the U.S. Government'sUSG's share of any pension curtailment adjustment calculated in accordance with CAS 413; (xix)(xxii) future levels of indebtedness and capital expenditures; (xx)(xxiii) compliance with our debt covenants; (xxiv) the continued availability of raw materials and other commodities in adequate supplies and the effect of increased costs for such items; (xxi)(xxv) the effects of currency exchange rates and foreign competition on future operations; (xxii)(xxvi) changes in laws and regulations, taxes, interest rates, inflation rates and general business conditions; (xxiii) the effects, if any, of the UK's exit from the EU; (xxiv)(xxvii) future repurchases and/or issuances of common stock; (xxv)(xxviii) the incurrenceoccurrence of unanticipated restructuring costs or the failure to realize anticipated savings or benefits from past or future expense reduction actions; (xxix) the ability to recruit and (xxvi)retain skilled employees; and (xxx) other risks and uncertainties set forth herein in our 2016 Form 10-K and in our 2021 Form 10-Q for the fiscal quarter ended June 30, 2017.10-K.
Any forward-looking information provided in this report should be considered with these factors in mind. We assume no obligation to update any forward-looking statements contained in this report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases of Common Stockcommon stock by the Company during the three-month fiscal period ended September 29, 2017:30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number
of Shares
Purchased (a) | | Average
Price Paid
per Share | | Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan (b) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan(b) (in thousands) |
| July 2, 2022 - July 29, 2022 | | 1,505 | | | $ | 29.29 | | | — | | | $50,000 | |
| July 30, 2022 - August 26, 2022 | | — | | | $ | — | | | — | | | $50,000 | |
| August 27, 2022 - September 30, 2022 | | 616 | | | $ | 32.56 | | | — | | | $50,000 | |
| Total | | 2,121 | | | | | — | | | |
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Plan (b) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan (in thousands) |
| July 1, 2017 – July 28, 2017 | | — |
| | $ | — |
| | — |
| |
| $73,113 |
|
| July 29, 2017 – August 25, 2017 | | 8,937 |
| | $ | 50.85 |
| | 8,937 |
| |
| $72,658 |
|
| August 26, 2017 – September 29, 2017 | | 78,448 |
| | $ | 51.00 |
| | 78,063 |
| |
| $68,676 |
|
| Total | | 87,385 |
| | |
| | 87,000 |
| | |
|
(a) During the third quarter of 2022 the Company purchased 3852,121 shares in connection with employee tax withholding obligations as permitted by our equity compensation plans, which are SEC Rule 16b-3 qualified compensation plans. These were not purchases under our publicly announced program.
(b) On April 29, 2015,20, 2022, the Company announced that its Board of Directors approved a $100.0$50.0 million share repurchase program.
Item 4. Mine Safety Disclosure
Information concerning mine safety violations required by Section 1503(a) This plan replaces the authorization approved in April 2015. For additional information, see "Item 2. Management's Discussion and Analysis of the Dodd-Frank Wall Street ReformFinancial Condition and Consumer Protection Act ("Dodd-Frank Act")Results of Operations -- Liquidity and Item 104Capital Resources -- Other Sources/Uses of Regulation S-K was not required forCapital" in this quarterly report on Form 10-Q as there were no reportable violations duringfor the quarter.three-month fiscal period ended September 30, 2022.
Item 6. Index To Exhibits
|
| | | | | | | |
| Offer Letter | Previously Filed |
| 31.1 | Transition and Retirement Agreement between Kaman Corporation and Gregory L. Steiner dated September 21, 2017 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 21, 2017, File No. 001-35419) | Previously Filed |
| Certification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 | Filed Herewith |
| | Filed Herewith |
| | FiledFurnished Herewith |
| | FiledFurnished Herewith |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101 | |
* Management contract or compensatory plan.
SIGNATURES
Kaman Corporation and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | | | | | | | | | | |
| | KAMAN CORPORATION |
| | Registrant |
| Date: | October 26, 2017November 1, 2022 | | | /s/ Neal J. KeatingIan K. Walsh |
| | By: | | Neal J. KeatingIan K. Walsh |
| | | | Chairman, President and |
| | | | Chief Executive Officer |
|
| | | | | | | | | | | | | |
| Date: | October 26, 2017November 1, 2022 | | | /s/ Robert D. StarrJames G. Coogan |
| | By: | | Robert D. StarrJames G. Coogan |
| | | | ExecutiveSenior Vice President and |
| | | | Chief Financial Officer |
KAMAN CORPORATION
INDEX TO EXHIBITS
|
| | |
| Offer Letter between Kaman Corporation and Richard R. Barnhart effective as of September 24, 2017 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 21, 2017, File No. 001-35419) | Previously Filed |
| Transition and Retirement Agreement between Kaman Corporation and Gregory L. Steiner dated September 21, 2017 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 21, 2017, File No. 001-35419) | Previously Filed |
| Certification of Chief Executive Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 | Filed Herewith |
| Certification of Chief Financial Officer Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 | Filed Herewith |
| Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Herewith |
| Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed Herewith |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
